$34-Million Loss Reported by S.D. Thrift
Troubled Great American Bank on Wednesday reported a $34-million third-quarter loss, rendering the thrift insolvent based on one regulatory capital measure.
The San Diego-based S&L; attributed the loss, which wiped out its scant $32.2 million in tangible capital as of the end of June, to continued provisions for loan losses and an $11.5-million provision in anticipation of a loss from the proposed sale of its commercial real estate portfolio.
Great American said the Office of Thrift Supervision was warned of the third-quarter loss in estimates included in the thrift’s revised capital plan submitted last month. An OTS spokeswoman on Wednesday declined to comment on Great American’s negative tangible capital balance and whether it could precipitate a regulatory takeover of the institution.
With assets of $15 billion, Great American was once one of the nation’s most powerful and innovative S&Ls.; But the 211-branch thrift has been rocked over the last two years by deteriorating loans in California and Arizona, causing it to take massive loan write-downs. The thrift has been severely capital-deficient since late last year.
Great American lost $65.6 million in the third quarter of 1989 and lost $143.1 million in the first nine months of this year. It lost $64.5 million in the first nine months of 1989.
Its weakened capital position forced it to arrange the sale of its 130 California branches to Wells Fargo Bank for $491 million. Pending regulatory approval, Great American expects to complete the first phase of the sale, including all branches in San Diego, Riverside and Orange counties, by Nov. 30. The rest of the branches will transfer by mid-1991.
Great American said it expects to add $106 million to its capital as a result of the gain from the first-phase sale, which should remove it from insolvency. Another $30 million will be added upon completion of the second phase, a spokesman said.
Whether the added capital is enough to save Great American from a federal takeover is “up to the regulators,” said Campbell Chaney, an S&L; analyst for Sutro & Co. in San Francisco. Great American’s “financial performance at this point is a non-event. It’s what will exist after the Wells Fargo purchase.”
The tangible capital ratio is the most stringent of three capital adequacy tests applied by regulators, as it does not allow “goodwill” and other intangible assets to be used in computing capital. Great American has positive capital balances for the other two types of capital standards, although both are hundreds of millions of dollars below regulatory requirements.
Also a factor in Great American’s third quarter loss is the thrift’s badly deteriorating loan portfolio. About $835 million, or 5.55% of Great American’s assets, are generating no income at all, up from 4% at the end of last year. The thrift’s “classified assets,” a broader measure of problem loans that anticipates future losses, increased over the three-month period by $200 million to $2 billion.
Under-performing or non-performing loans cut into an S&L;’s earning power. Indeed, Great American’s net interest income--the difference between what it pays out to depositors and what it takes in from borrowers--was $151 million for the first nine months of 1990, down from $177.9 million over the same three quarters last year.
In buying 130 branches from Great American, including 64 in San Diego County, Wells Fargo is also taking control of $6.3 billion in deposits. The acquisition will give Wells Fargo the No. 1 depository market share in San Diego County.
The S&L; also disclosed that it has cut payroll by 15% since the start of the year. About 1,800 of the 3,476 employees who remain will become Wells Fargo employees, once the two-phase branch sale is completed.
