Great American Expects to Boost Losses for 1989
Great American Bank disclosed Thursday that it expects to increase its fourth-quarter and full-year 1989 losses announced last month because its auditors have decided to extend their review of troubled loans in Arizona and elsewhere in the Southwest.
The unusual announcement comes a week after the troubled San Diego-based thrift disclosed a fourth-quarter loss of $59.3 million after setting aside loan-loss provisions of $87 million, much of them relating to a troubled Arizona real estate loan portfolio. For all of 1989, Great American posted a loss of $123.9 million, reflecting loan-loss provisions of $221 million.
Great American, the nation’s seventh-largest savings and loan, declined to estimate the possible amount of additional loan-loss provisions that the review by Deloitte & Touche may cause, or say when the audit may be completed. The Deloitte & Touche audit partner in charge, Robert Bayer of San Diego, declined to comment on the announcement.
Great American spokesman Brian Luscomb said the firm’s understanding until this week was that the original audit was final. “That’s what we thought, but (Deloitte & Touche) changed their minds” and decided on a further review. That is now likely to result, the bank said, in “further valuation adjustments” or loan-loss provisions, which act to reduce earnings.
Great American declined to comment on the circumstances behind the extended review but did say examiners from the federal Office of Thrift Supervision are making an unrelated, routine examination of Great American’s books. Great American contended, however, that it was in no danger of a federal takeover.
Great American’s previously announced losses left the thrift deficient in all three of the capital adequacy tests instituted under last summer’s S&L; rescue bill. To boost capital, the thrift had previously announced plans to trim overhead by reducing payroll and to shrink assets by selling its Great American Development subsidiary. Great American, with $16.1 billion in assets, suspended its quarterly dividend last month.
Great American stock closed down 37.5 cents a share at $5.375 in New York Stock Exchange trading Thursday.
Investment analysts reacted to the announcement with surprise, noting that quarterly earnings statements are sometimes revised but that revisions of year-end results are rare.
“It’s the first fifth-quarter loan-loss provision I’ve ever heard of,” said Blaine Roberts, president of Morgan, Roberts & Co., a La Jolla-based investment banking firm that, with its clients, controls about 4% of outstanding Great American shares. Roberts said the announcement demonstrates “problems in management.”
Noting that his firm regards Great American stock as an “under-performer,” Bruce Harting, vice president at the Salomon Bros. investment banking firm in New York, said the announcement is a harbinger of continuing bad news for Great American. “There is no sign of stability in the loan portfolio, and it would appear things will continue to deteriorate,” he said.
Judging from the short-interest position of Great American stockholders, a significant number of investors concur. As of Feb. 15, Great American short interest totaled 2.1 million shares, the seventh-highest percentage among New York Stock Exchange issues when expressed in average trading days needed for investors to cover their short positions by buying stock to replace shares they had borrowed.
A high ratio of short interest, which measures the degree to which shareholders hope to capitalize on a declining stock price, means that a lot of investors think the stock is headed down.
Wedbush Corp. President Ed Wedbush, who with his firm owns 17% of Great American stock and who last month announced his intention to seek a more active role in the S&L;’s management, was unavailable for comment Thursday.
