Valley Federal Listed as ‘Troubled’ S
Valley Federal Savings & Loan Assn. said today that it has been declared a “troubled institution” by the federal agency that oversees thrifts and was ordered to stop all new lending and investment activities immediately .
Van Nuys-based Valley Federal also said it expects to post a fourth-quarter loss of $31 million and will take a $66-million charge related to the write-offs and servicing of its real estate loans.
The thrift, which has $3.1 billion in assets, has been operating in the San Fernando Valley since 1925.
The Office of Thrift Supervision determined that Valley Federal is a “troubled institution” that is undercapitalized and therefore is in unsound and unsafe condition to transact business, the thrift said.
Valley Federal said it has asked the agency to ease some of the orders, which have severely restricted its operations, but there is no assurance that the thrift will succeed.
The S&L; said it does not believe the orders will have an impact on earnings in the near future but, over time, results could be hurt.
In midday trading, Valley Federal shares plummeted $1.375 to $1.50.
All of Valley Federal’s new lending and investment activities were ordered to be discontinued, except those used to fund legally binding commitments that were in process as of Thursday, the thrift said.
The agency also required that all the thrift’s incoming cash, except for needed basic funds, be used to reduce liabilities other than insured deposits.
Valley Federal said it is prohibited from accepting uninsured deposits, paying bonuses to directors and officers and paying dividends. It has not paid dividends on its common stock since going public.
The thrift is also prohibited from conducting any deals with affiliates without the agency’s prior approval.
Valley Federal said it filed a capital plan with the agency showing that it expected to achieve record earnings in 1990 and “significant sustainable earnings” in later years, but the projections depended partly on the reinvestment of loan prepayments and other assets.
The capital plan was required under new agency rules that require thrifts to put more of their own funds at risk as a cushion against losses.
The capital guidelines ordered thrifts to have a tangible capital ratio of 1.5% of their loan portfolios and core capital ratio of 3% by Dec. 7 or face curbs on asset and investment growth until they come up with an acceptable plan for additional reserves.
About 800 of the nation’s 2,700 federally chartered thrifts failed the crucial test of their financial health, according to data previously released by Florida research company Bauer Financial Reports Inc.
The capital rules requirement resulted from the sweeping thrift-bailout bill adopted by Congress in August. The costliest rescue in history commits $50 billion in borrowings, plus more than $100 billion of interest during the next 10 years.
