FarWest Financial Blames Junk Bonds in $46-Million Loss
The parent company of FarWest Savings on Friday reported a loss of $46.1 million for 1989, mainly because it had to devalue its large portfolio of junk bonds by $105.9 million.
The losses continuing into this year at the Newport Beach-based thrift have left it short of three strict capital requirements mandated by recent federal law, but at the end of 1989, the savings institution did meet one of the tests.
FarWest officials said the thrift, owned by FarWest Financial Corp. of Los Angeles, remains solvent. They are talking with regulators about a plan to raise the thrift’s level of capital, its final reserve against losses. The plan includes efforts to downsize the thrift, curtail expenses and shift the S&L;’s focus to comply with new regulations.
“In one way, this loss demonstrates the resiliency of the company,” said Charles H. Green, the thrift’s president. “To see that the company was able to absorb that hit and still meet one capital test shows the company’s strength.”
In the previous year, the company, which is controlled by the Belzberg family of Canada, reported net earnings of $8.6 million.
The annual loss at the parent firm also reflected a $45.1-million writedown in other assets. But that did not plunge the company into the red. Were it not for the reserve it had to take on its junk bond portfolio, Green said, the company would have posted a net profit close to $10 million.
Even so, the annual loss was somewhat higher than previously revealed by regulatory documents and even by FarWest executives last fall. Green would not reveal financial results for the first quarter, except to acknowledge that the thrift will report a loss.
FarWest had placed about 14% of its assets in high-yield, high-risk corporate securities known as junk bonds. Then Congress passed a law to rescue the thrift industry’s deposit insurance system. The huge restructuring of the industry included a provision requiring thrifts to divest themselves of all junk bonds within five years.
That requirement sent the junk bond market into a tailspin that was intensified by problems at the junk bond pioneering firm of Drexel Burnham Lambert, the New York brokerage that filed for bankruptcy protection earlier this year.
At the end of December, FarWest still held about $535 million in junk bonds, or about 12% of its $4.3 billion in assets. Green said the thrift has now sold more junk bonds than it had planned to and had reduced its assets to about $4 billion by the end of March.
