Great American’s Losses Worsen; S&L; Seeks Buyer

Great American Bank, announcing huge revised 1989 fourth-quarter and full-year losses that nearly rendered it insolvent, said on Tuesday that its days as an independent savings and loan may soon be over.

The San Diego-based thrift, the nation’s eighth largest, said it has asked its investment bankers to explore a “possible sale of the bank or merger with another financial institution.” Some giant California banks expressed interest in acquiring the thrift.

Great American said that continuing troubles with its Arizona operations forced it to increase its full-year and fourth-quarter losses, to $263.4 million and $198.9 million, respectively, wiping out much of its capital.

The thrift expressed optimism that it could be sold or find a way out of its woes, but analysts suggested that the thrift may be seized by federal regulators if its problems with Arizona loans persist.

All deposits at Great American of up to $100,000 continue to be insured by the federal government, so insured depositors need not fear that their savings will be wiped out if Great American is taken over.

Security Pacific Chief Executive Robert H. Smith acknowledged to reporters Tuesday that the bank has examined Great American but did not elaborate. Wells Fargo also is interested, and BankAmerica is rumored to have looked at Great American.

Wells Fargo President Paul Hazen would not comment specifically on the bank’s interest in Great American. But the bank’s chairman, Carl E. Reichardt, told shareholders in Los Angeles that “San Diego is the most impressive of the state’s largest markets.”

Teams of auditors representing potential buyers and investors have reportedly been in Great American’s downtown San Diego offices for weeks going over the S&L;’s books. Great American’s Southern California branches, particularly the 64 in San Diego County, where S&Ls; have traditionally been stronger than banks, are deemed a particularly attractive franchise to banks.

While acknowledging that several financial institutions have shown an interest, Great American President Roger Lindland said such deals can take weeks to consummate and gave no clue as to when a sale might be completed.

Great American, which has $15.9 billion in assets, also said the Office of Thrift Supervision had approved a plan that would enable it to remain an independent institution if it can raise $350 million in outside capital by Dec. 31. That amount would bring the troubled thrift in line with the three capital adequacy tests imposed as part of last summer’s S&L; rescue bill.

But S&L; analysts were openly skeptical that the capital plan is realistic and doubted that Great American can raise that amount of money in the current investment climate. They also noted that while the OTS approval seemed to give Great American some breathing room from a possible regulatory seizure, it also set a deadline.

The analysts generally agreed that Great American’s best hope of avoiding a government takeover was through an outright sale of the entire S&L.; While a takeover would probably wipe out its stock and bond holders, a sale to another institution would presumably help them recoup at least some of their investment.

In addition to an outright sale of the 213-branch S&L; and efforts to raise $350 million, Great American said its investment bankers were also looking into the possibility of selling selected branches and assets. Analysts said that approach also has slim chances of success because it makes the remaining S&L; less viable.

Bert Ely, an Alexandria, Va.-based consultant to S&Ls; and banks, said the “probability of (Great American’s) surviving as a free-standing institution is quite low now. Shrinkage won’t do the job alone. And when you are down as far as they are . . . the capital market is essentially closed to thinly capitalized thrifts.”

Great American’s revised fourth-quarter loss of $198.9 million brought its capital levels to below all three capital adequacy tests passed as part of last summer’s S&L; rescue bill. Its so-called tangible capital of $85.9 million, for example, is $148.2 million shy of the $234.1 million required by regulators.

The revised losses come six weeks after Great American’s unusual announcement on March 1 that its auditor, Deloitte & Touche, had decided to extend its review of Great American’s problem loans in Arizona and elsewhere in the Southwest. The announcement came just two weeks after Great American had posted a $59.3-million fourth-quarter loss and $123.9-million full-year deficit, presumably with Deloitte & Touche’s blessing.

The extended audit resulted in an increase in Great American’s 1989 provision for loan and foreclosure losses to $405 million, up from the $221 million reported in February. The main source of the bad loans is its $1.6-billion Arizona loan portfolio, most of which it acquired in 1986 when it bought Home Federal Savings of Tucson. Plunging real estate values have caused Great American and other S&Ls; to drastically write down the value of the loans.

Although Great American officials are hopeful that the worst is behind them, “Arizona may still take several years to work itself out,” said Donald Crowley, senior vice president in the San Francisco office of Keefe, Bruyette & Woods, an investment firm.

Great American’s exposure to the “black hole” of plunging Arizona real estate values makes the possibility of a regulatory takeover still stronger, said David Hochstim, an analyst with Bear, Stearns & Co. in New York. Potential buyers may prefer to wait to make offers until after regulators step in and seize the S&L; and thereby assume responsibility for Great American’s problem loans in Arizona.

Great American stock closed up 87.5 cents a share at $4.625 in heavy trading Tuesday on the New York Stock Exchange.