UnionFed Facing ‘Significant Loss’; Real Estate Blamed
UnionFed Financial Corp.’s stock was battered Wednesday after it disclosed that a deteriorating real estate loan portfolio would lead to “a significant loss” for the year ended June 30, reversing a previously reported $11.1-million profit for the period.
The Brea-based savings and loan holding company, which operates Union Federal Savings Bank in Los Angeles, would not quantify the loss but said it stems from a substantial increase in its reserves for possible losses being required by federal thrift regulators.
In a statement, the company said the additional loss provisions were the result of a “further deterioration in real estate markets” and a more conservative approach to valuations of real estate mandated by regulators. The thrift is now being examined by the Office of Thrift Supervision and the Federal Deposit Insurance Corp.
UnionFed also said it would not be able to file its annual audited report with the Securities and Exchange Commission by Friday, the normal due date. It did not indicate if it could file the report within the 15-day extension.
Traders on the New York Stock Exchange reacted negatively to the news. The stock closed Wednesday at $2.50 a share, down $2.25 from Tuesday’s close. The stock traded as high as $24.125 within the past year.
UnionFed’s 63-year-old thrift has assets of $2.5 billion and 27 branch offices in Los Angeles and Orange counties. In a cost-cutting move, the company moved its headquarters from downtown Los Angeles to its Brea administrative facility last month.
Company officials would not comment beyond their terse press release.
UnionFed’s problems stem principally from its real estate investments and loans on the East Coast, particularly in New England and Florida, analysts said. The commercial real estate market in the East is in the throes of a severe slump that has hurt numerous banks and thrifts.
“We turned negative on the stock back in March when the price was at $13 a share,” said Donald K. Crowley, an industry analyst with the San Francisco office of Keefe, Bruyette & Woods, a New York investment banker and brokerage.
Another analyst, Campbell K. Chaney of San Francisco’s Sutro & Co. brokerage, said his firm also took UnionFed off its list of stocks to buy in March, after the company filed a quarterly report on its financial condition with the SEC.
That report revealed that the S&L; had major loan problems with a Boston-based developer and other East Coast borrowers. The developer, who was not identified, had pledged commercial properties in Maine for loans that totaled $25 million at the end of December. The other borrowers were delinquent on $21.8 million in loans.
In addition, Union Federal’s real estate development arm, Uni-Cal Financial Corp., was owed $16.8 million on a Key West, Fla., hotel. Uni-Cal also foreclosed on $11 million of property in Florida, according to the company’s SEC report for the third quarter ended March 31.
The analysts said UnionFed’s problems, if limited to the New England and Florida properties, probably could be absorbed by the company. The firm would have to lose more than $90 million of its $168 million in regulatory capital--its final reserve against losses--before it would fall below the minimum capital levels set by regulators, Chaney said.
But they worry that there may be other problems for the firm.
“The market believes the problems go well beyond the one developer in Maine,” Chaney said. “The market believes the company has other problems.”
One of those problems, Crowley said, could be the thrift’s total bad loans, a key barometer of future troubles. Union Federal’s nonperforming loans amounted to 5.83% of its total loans, which he characterized as “a difficult situation” for the S&L.; Most bankers worry when that figure gets above 3%.
Another problem is Uni-Cal, the real estate development arm of Union Federal. Under year-old federal law that restructured the thrift industry, S&Ls; must dispose of their real estate development and investment activities within five years.
UNIONFED FINANCIAL CORP. LOCATION: Brea
MAIN SUBSIDIARY: Union Federal Savings Bank
MAIN BUSINESS: Construction and mortgage lending, real estate investing
TOP EXECUTIVE: Roger L. Kringen, chairman, CEO and president
EMPLOYEES: 400
OFFICES: 27 branches in Los Angeles and Orange counties
STOCK PRICE: $2.50
52-WEEK TRADING RANGE: High of $24.125; low of $1.50
ASSETS: $2.5 billion
RECENT DEVELOPMENTS: The company said it will restate its fiscal 1990 earnings of $11.1 million to reflect a “significant loss” due to provisions for possible loan losses and writedowns of real estate holdings.
FINANCIAL PERFORMANCE
Net income(in millions)
Year: 1985: $5.0
1986: 14.0
1987: 16.8
1988: 16.9
1989: 18.1
Source: United Financial Corp.
