Great American Seeks Advice From Shearson

Troubled Great American Bank said Wednesday it has selected the Shearson Lehman Hutton investment banking firm to advise it on ways of raising capital to bring it in line with minimum regulatory requirements.

The troubled savings and loan declined, however, to discuss the financing alternatives that it plans to review with the firm or estimate when it will make a decision. As of Dec. 31, the S&L; was deficient in all three key capital adequacy standards applied by federal regulators in the wake of last summer’s savings and loan rescue bill.

Last week, Great American said its capital levels are likely to decline further in light of the decision by its auditor Deloitte & Touche to extend its review of Great American’s problem loans in Arizona and elsewhere in the Southwest.

The extended audit is likely to result in additions to the loan-loss provisions already taken by Great American for the fourth quarter and full year ended Dec. 31. The additions would result in deeper losses and a further erosion of capital. Great American previously reported a fourth-quarter loss of $59.3 million and a full-year loss of $123.9 million.

Sources at Great American, who said Wednesday that the completion of the extended audit could still be a week away, said the recapitalization alternatives will not be decided until the audit is in. Great American management will then have a better idea of how much additional capital will be required, they said.

In its announcement earlier this week, Great American said it had received “a number of unsolicited inquiries from potential investors” but declined to comment on whether it was putting itself up for sale. Wells Fargo Bank is among the financial institutions said to be interested in Great American and its 214-branch network.

Sources said the thrift has targeted $300 million as an amount of outside capital that could be needed to help it meet the capital standards as well as provide a buffer against possible future losses.

But thrift industry observers say they expect Great American to have difficulty raising that amount until its earnings--and problem Arizona loans--stabilize.

“Weakly capitalized institutions are having problems raising capital because there is so much uncertainty,” said Bert Ely of Ely & Co., financial institution consultants based in Alexandria, Va. “The dust has to settle from all the loss write-offs and revelations of problems before the market can get a handle on where the institution stands financially,” he said.

With $16.1 billion in assets, Great American is the nation’s seventh-largest publicly owned savings and loan.