CalFed Reports First Quarterly Loss in 8 Years : Thrifts: The parent of California Federal Bank blames the $53-million hit partly on the state’s weakening commercial real estate market.
The parent of California Federal Bank, one of the nation’s largest savings and loans, reported its first quarterly loss in eight years Friday in another indication that problems with commercial real estate loans in California are spreading further through the state’s banking system.
Los Angeles-based CalFed Inc. said it lost $53 million in the second quarter because of $78.3 million in additions to loan-loss reserves as well as $13.4 million in losses on real estate in which it had a direct investment. The company earned $19.1 million in the second quarter of 1989.
The announcement comes hard on the heels of news earlier this week that another large California S&L; company, HomeFed Corp., lost $108 million in the second quarter, also because of problems with commercial real estate loans.
“I don’t think this is the last time you’re going to see problems with commercial real estate in California,” said Peter Treadway, analyst for Smith Barney, Harris Upham & Co. in New York. “I think the market is going to provide more unpleasant surprises in the next two years.”
The red ink is reminiscent of the losses that some commercial banks in California sustained in the mid-1980s when their real estate loans went sour. California Federal last lost money in the early 1980s after interest rates soared sky high and drenched the entire thrift industry in heavy losses.
Jerry St. Dennis, chief executive of CalFed, blamed the current problems mainly on declining real estate values and an oversupply of commercial real estate. CalFed said its problems are occurring in California as well as in Arizona and the Southeast.
Properties that have gotten into trouble include an apartment building in Southern California, an office building near San Francisco, a hotel in Florida and a shopping center in South Carolina, company officials say.
In a phone interview, St. Dennis said the California commercial real estate market is in the grip of a slow decline that will probably last two years before the market rebounds. Downtown Los Angeles, San Diego and suburban San Francisco are particularly overbuilt, CalFed officials say.
The losses by CalFed and Home-Fed also reflect a tougher stance by banking regulators, who are pushing financial institutions to recognize their problems more quickly and accurately.
These losses are “not a surprise to anyone who follows this industry,” said Allan G. Bortel, financial analyst for Sutro & Co. in San Francisco. “Regulators are taking a very tough stand. CalFed is not alone. They are neither the first nor last to be setting up these reserves.”
The losses are also another reminder that California’s largest savings and loans, once regarded as the best-run in the industry, have lost their immunity to the problems that have devastated so many of their smaller competitors.
Once-healthy thrifts such as Great American Savings in San Diego and Columbia Savings in Beverly Hills have sustained huge losses in recent months and seen their long-time chief executives step aside.
About the only large California thrifts that have escaped heavy losses are those devoted almost exclusively to single-family mortgage lending, the traditional staple of the savings and loan industry. These include World Savings and Home Savings of America.
