Great American Stock Sinks to Record Low
Great American Bank’s stock price sank to an all-time low Wednesday, reflecting growing pessimism about the savings and loan’s chances of survival.
In New York Stock Exchange trading, Great American shares closed at $2, down $.375 on the day, on relatively heavy volume of 544,000 shares traded. The shares had sold for as little as $1.625 earlier on Wednesday.
The stock was not helped by the S&L;'s reporting a $1.2-million loss for its first-quarter ended March 30, a report released Tuesday after the stock markets had closed. But the loss seemed almost palatable in contrast to the massive losses that Great American had reported for its 1989 fourth quarter and full year.
It was the disclosures farther down in Great American’s press release that did the most damage and which were most discouraging to those who had hoped that the S&L; had finally gotten a handle on its problem loans. The news was that Great American is involved in yet another tiff with its auditors, one that could result in up to $65 million in asset write-downs for the second quarter to end June 30.
Great American does not have an enviable record in its past fights with auditors. A dispute this year with its outside auditor Deloitte & Touche resulted in Great American revising its fourth-quarter and full-year 1989 losses downward by more than $140 million. The value of Great American’s real estate loan portfolio in Arizona and elsewhere in the Southwest was at the core of the dispute.
This time, Great American is in combat with the Office of Thrift Supervision, the federal S&L; regulatory agency, whose auditors have questioned that value of loans in California and Washington.
“This is a disaster, having a dispute with federal regulators after their own accountants had to come in and had to revise the (1989) numbers,” said Irving Katz, director of research at Thomas Green/San Diego Securities.
Great American also disclosed that, despite efforts to clean up its troubled portfolio, its non-performing loans had continued to mount. Its classified assets, those which are currently underperforming or likely to soon become so, grew to $1.39 billion as of March 30, up from $1.3 billion on Dec. 31.
That means a staggering 9% of the S&L;'s $15.4 billion in assets are likely to involve a loss before repayment, contrasted with an average bad asset ratio of about 1.2% among thrifts covered by Sutro & Co. investment bankers of San Francisco.
Because so many of Great American’s loans are delinquent, its net interest income continues to decline. For the first quarter, its net interest income was $57.1 million, or $14.6 million less than the $71.7 million reported for the first quarter 1989.
“It just seems to go on and on,” said Allan Bortel, vice president in Sutro & Co.'s corporate finance department in San Francisco.
“But, when you have real estate problems as bad as Arizona, there are no easy answers. One thing I’ve learned about real estate is that it always takes longer to turn it around than anyone ever estimates, meaning the company, the regulators, the auditors or the investment bankers,” Bortel said.