2 Firms’ Bankruptcies May Affect Imperial : Junk bonds: Analysts agree more market weakening could increase the damage to S&L;’s tangible net worth.

Tuesday’s Chapter 11 bankruptcy filings by Drexel Burnham Lambert and Integrated Resources added to the bad news that Imperial Corp. of America shareholders have been reading about companies that played integral roles in the San Diego-based company’s downward financial spiral.

It was uncertain on Wednesday, however, if the two bankruptcy filings would further damage the already weakened company or its wholly owned Imperial Savings subsidiary. Imperial Savings Executive Vice President Neil Pont declined Wednesday to comment on the filings.

However, the tumbling junk-bond market previously had reduced the value of Imperial’s high-yield bond portfolio by about $200 million. Analysts agreed Wednesday that further weakness in the junk-bond market could force Imperial to further write down the value of its high-yield corporate bonds. That would further damage Imperial’s tangible net worth, which already is below federal regulatory minimums.

ICA reported a $136.2-million loss during the first nine months of 1989. On Jan. 6, the federal Office of Thrift Supervision, concerned that the Imperial would not meet tough new capital rules, ordered a halt to new loan and investment activity at the San Diego-based S&L.;

The OTS is expected to complete its review of Imperial’s five-year restructuring plan by the end of this month, said Pont, who declined to discuss specifics of the plan.

ICA has told regulators that it could meet the new capital requirements by “considerably” shrinking its current asset base of about $11 billion, Pont said. The smaller asset base would make it easier for the S&L; to meet the capital standards.

Although Imperial expects its traditional S&L; businesses to continue generating profits, the plan calls for Imperial to withdraw completely from investment banking. It already has sliced its junk-bond portfolio from $1.5 billion to about $800 million.

“We have until 1994 to sell the (junk bonds) off,” Pont said. “As we’ve said earlier, we’re trying to divest them in an orderly fashion. . . . We’ve made it clear to analysts that we’re transforming into a traditional thrift.”

Gareth Plank, a San Francisco-based analyst with Shearson Lehman Hutton, suggested that the Chapter 11 filings by Drexel and Integrated Resources will have little effect on ICA--largely because the company’s troubles “have been so well known already.”

“ICA has definitely gone over the edge, and federal regulators (were already) looking at it,” Plank said. “Clearly, the feds have the option of taking over Imperial. It doesn’t take a genius or a rocket scientist to figure that out.”

Imperial last year took steps to address problems generated by Integrated Resources’ bankruptcy filing, which listed Imperial as one of its 10 largest creditors, with a $40-million claim. During the third quarter of 1988, Imperial wrote that debt down to $8 million, and the company conducted a second write-down during the now-completed fourth quarter, Pont said.

Still, the bankruptcy filings represented stunning news for ICA shareholders.

“My response was, ‘Oh, gosh, here are a couple of other ones,’ ” said Los Angeles-area resident James E. Wagner, upon hearing of the Drexel and Integrated Resources filings. Wagner has watched the value of his $25,000 investment in ICA stock tumble as ICA’s shares plummeted to $.0625 from a high near $19 in 1987.

Drexel and Integrated Resources were the latest in a growing list of now-troubled companies that helped to steer Imperial into some decidedly non-traditional S&L; businesses.

In late 1988 and throughout 1989, much of the bad news that ICA’s shareholders were reading was linked to a troubled portfolio of car loans that ICA purchased from Grand Wilshire Finance Corp., a now-bankrupt Los Angeles-area firm. ICA since has alleged that the portfolio was fraudulently managed by Grand Wilshire. Also during 1988, ICA was dogged by problem loans made to a now-bankrupt New Jersey firm that sold Yugo dealerships in the United States.

Imperial’s junk-bond, consumer-loan and investment banking portfolios losses came to a head last summer, when Kenneth Thygerson, who had joined ICA as president in 1985, resigned. At the same time, ICA’s board turned its back on the relatively risky businesses espoused by Thygerson and turned Imperial back to the traditional S&L; businesses that Thygerson has described as “plain vanilla” businesses.

Shortly after Thygerson left, shareholders were stunned to read about ICA’s financial troubles in a Barron’s magazine article titled “The Trashing of an $11-Billion Thrift.” The article, which ICA subsequently described as “biased,” strongly suggested that ICA’s growing financial problems were largely caused by fraudulent activities.

Although Pont believes that Imperial is “on target” with its restructuring plan, Wagner, the only dissident shareholder to speak up at last year’s ICA annual meeting, described ICA’s turnaround attempt as meaningless.

“The stock price tells the story,” said Wagner, who suggested that ICA’s board members “who bother to show up” at ICA’s upcoming--but as yet unscheduled--annual meeting “had better wear suits of armor.”

“You bet I’m going to go” to that meeting, Wagner said. “The company will probably be delisted from the New York Stock Exchange, and this is only the second time in 20 years that I’ve been defrauded.”

Wagner said Wednesday that ICA shareholders could one day be reading about yet another troubled company with ties to ICA. Financial industry observers believe that First Executive Corp., which owns about 10% of ICA’s common stock, could be decimated by losses should junk bonds continue to fall in value.

First Executive is a life insurance holding company that has been extremely active in the junk-bond market. Like ICA, it has close ties to Drexel and Integrated Resources.