FarWest Financial Loses $26.2 Million Due to Junk Bonds

FarWest Financial Corp. said Friday that it lost $26.2 million for the first quarter because of federal requirements that it continue writing down the value of its huge portfolio of junk bonds.

The loss followed an announcement just three weeks ago that the parent of FarWest Savings lost $46.1 million for all of 1989.

FarWest Savings President Charles H. Green said last month that the thrift would report a first-quarter loss.

Despite three consecutive quarters of heavy losses, FarWest Financial said its S&L; subsidiary’s net worth ratio remains positive.

The S&L; fails, however, to meet federal requirements for capital and is working with regulators to develop a plan to improve its financial position.

As part of its rehabilitation effort, FarWest recently spun off its mortgage-lending operation, a move, called “downsizing,” that helped reduce its total assets to $4 billion from $4.3 billion at the end of 1989 and raised its ratio of capital to assets.

FarWest reportedly intends to sell other assets, cut back on expenses and shift its focus from investing in the secondary money markets to direct residential lending.

Green and other FarWest officials say the company’s woes stem from the S&L;’s heavy investment in junk bonds--low-rated, high-risk corporate debt.

As a result of new federal S&L; regulations, thrifts must carry junk bonds on their books at current market value rather than at the purchase price.

In FarWest’s case, the market value of its junk bond portfolio fell by $36 million during the quarter, forcing the thrift to set aside that much in a reserve fund and resulting in the quarterly loss, the company said.