Great American, Coast Savings Report Losses : Thrifts: The red ink is blamed on the declining real estate markets in California and other states.
Two of California’s largest savings and loan firms, Great American Bank and Coast Savings Financial, reported steep losses Thursday, providing further evidence of softening real estate markets in California and elsewhere.
San Diego-based Great American reported a $107.9-million second-quarter loss. The thrift had indicated last week, when it announced an agreement to sell its 130-office California branch network to Wells Fargo & Co., that it anticipated a loss in excess of $100 million.
The loss, which brought Great American to the very brink of insolvency, was caused mainly by additions to reserves totaling $136 million to cover probable loan and foreclosure losses and a $40-million loss on real estate operations. The loss compares to a $10-million loss for 1989’s second quarter.
Great American’s tangible capital--one measure of its financial strength--is now a scant $32 million, or 0.21% of its $15.4 billion in assets. Great American’s capital is thus $195 million short of the minimum $227 million, or 1.5% of assets, required by regulators.
Despite the $492 million that Great American would receive from Wells Fargo for the California branches if the deal goes through, many analysts are skeptical that Great American can survive.
Perhaps the most ominous sign for Great American is the sharp rise in its nonperforming assets--loans that are 90 days or more delinquent or in foreclosure. They rose to $699.9 million, or 4.48% of assets, up from $556.7 million, or 3.61% of total assets, as of March 31.
A high percentage of nonperforming assets greatly impairs an S&L;’s earnings power. That earnings drag was reflected in the decline in Great American’s net interest income before loss provisions to $53.1 million for the second quarter, down from $59.6 million for the same three months last year.
A broader measure of Great American’s problem loans, called net classified assets, jumped to $1.8 billion. That’s nearly double the $929.2 million in net classified assets as of March 31. Classified assets are those that management thinks are likely to produce losses at some point in the future.
Great American attributed the jump in classified assets to a slowdown in “certain California real estate markets” and to tougher standards overall for determining problem loans.
Meanwhile, Los Angeles-based Coast Savings Financial, parent of Coast Savings Bank, reported a $28.7-million loss for the second quarter, mostly because of problems with loans on apartments and office buildings in Colorado, Texas and New England.
In an interview, Coast Chief Executive Ray Martin said many of the problem loans were made in the 1970s before the economies in those areas softened. He said that Coast stopped making commercial real estate loans in 1987 and that the thrift’s home loans in California, the bulk of its business, are performing well.
Coast set aside $31.5 million for losses it may suffer on problem loans and another $16.5 million for losses on foreclosed real estate. Desite the losses, Coast still meets all he government’s necessary requirements for capital, the financial safety net a thrift must maintain.
Also, First Nationwide Financial Corp. said it earned $41.3 million in the second quarter, compared to only $3.5 million a year earlier. The San Francisco-based unit of Ford Motor Co. attributed the gain to a higher margin between what it earns in interest and what it pays out to depositors. It also cited efforts to lower operating costs.
CALIFORNIA THRIFTS’ REAL ESTATE WOES CalFed
* Second-quarter loss of $53 million, its first quarterly loss in eight years, due to $78.3 million added to loan-loss reserves and $13.4 million in real estate losses. Declining real estate values and an oversupply of commercial real estate in California, Arizona and the Southeast were blamed.
Coast Federal
* Second-quarter loss of $28.7 million stemming from problems with commercial real estate loans outside California.
Great American
* Second-quarter loss of $107.9 million. Wells Fargo purchasing Great American’s 130 California branches. Burdened with commercial real estate, apartment and land loans in Arizona’s depressed real estate market, Great American was forced to sell assets to raise capital to meet regulatory requirements on reserves.
Great Western
* Securities and Exchange Commission conducting an “informal inquiry” involving real estate loan problems that caused a $77.3-million loss in the fourth quarter of 1989. Moody’s lowered its credit ratings, expressing concern about adequate reserves to cover potential losses on commercial real estate loans.
HomeFed Bank
* Second-quarter loss of $108 million due to problems with commercial real estate loans. A sharp increase in foreclosures and delinquent loans during May brought the thrift’s bad loans to $579 million, or 3.12% of its assets. Most of the increase in bad loans were attributed to $54 million in delinquent loans from a Northern California real estate developer.
