FarWest Financial Suffers $89-Million Loss in 3rd Quarter
Ailing FarWest Financial Corp. reported a third-quarter loss of $89.9 million on Friday, pushing its principal operating subsidiary, FarWest Savings & Loan Assn., closer to a possible government takeover.
The loss also adds to growing pressures that the billionaire Belzberg brothers of Canada, FarWest’s majority owners, invest a sizable amount of money to bring the thrift’s capital up to regulatory requirements. If they choose not to, they face the possibility of losing their entire investment in the S&L; if it is seized by regulators.
The S&L;, which has $3.5 billion in assets, acknowledged last month that it is insolvent. It is FarWest Financial’s only major asset.
Gerry Findley, a Brea bank and thrift consultant, said the loss was “probably more than they anticipated at FarWest, but it wasn’t unexpected. You just don’t know what is going to happen these days in a federal exam as they make you write down loans and real estate.”
All of FarWest’s loss for the quarter was accounted for by a federal requirement that the thrift subsidiary set aside $91.8 million as a reserve against potential losses from real estate, loans and investments.
A sizable part of the thrift’s financial problems stem from the decline in value of its huge portfolio of high-yield, high-risk junk bonds. FarWest Savings’ junk bond holdings totaled $395 million as of June 30, down from $600 million earlier in the year.
Officials at FarWest Financial in Beverly Hills could not be reached for comment Friday, nor could officials of the S&L;, headquartered in Newport Beach. FarWest Financial’s latest loss compared to a $22.9-million deficit for 1989’s third quarter.
For the first nine months of the year, the holding company reported total losses of $119.7 million, compared to a $6.6-million loss for the same period in 1989.
In a statement issued Friday, FarWest Savings President Charles Green said the third-quarter loss occurred because federal regulators required the thrift to set aside new reserves to cover $42.7 million in losses on loans, $22.3 million in losses on real estate held through foreclosure and a $26.8-million loss on its junk bonds.
FarWest, through the Belzberg brothers, maintained a close business relationship with former junk bond king Michael Milken, sentenced to 10 years in prison Wednesday for securities fraud and other crimes. In the late 1980s, FarWest invested about $600 million in junk bonds peddled by Milken’s firm, Drexel Burnham Lambert.
But the thrift bailout bill of 1989 required that junk bonds be removed from S&L; portfolios by July, 1994, and required thrifts to begin carrying such bonds on their books at either their purchase price or, if lower, their current market price.
As a result, FarWest has written down the value of its junk bond holdings for several successive quarters because their values have fallen as the market for high-risk securities collapsed in the wake of the Drexel-Milken scandal.
In addition to its junk bond woes, FarWest has been hit hard by federally required writedowns of its loan and real estate portfolios. The S&L; was a major lender in the Texas and Colorado commercial real estate markets before the oil bust of the early 1980s.
In his statement Friday, Green said FarWest Savings currently is preparing a plan to bring its capital up to the minimum level required by the federal government but did not say when that plan would be completed.
The S&L;’s previous capital improvement plan was rejected in October, driving the thrift into insolvency.
