Security Pacific Cancels Offering; Stock Plunges 12%

Security Pacific Corp.’s stock tumbled $3 a share, or 12%, Friday after the Los Angeles-based banking company took the highly unusual step of pulling an $100-million offering of notes that had been sold out less than a day earlier.

The bank’s action--combined with its offering virtually no explanation for the withdrawal of the debt offering--shocked Wall Street and led many investors and analysts to conclude that it has found additional loan problems and will soon be forced to set aside large chunks of money to cover possible losses.

If that were the case, Security Pacific would have to pull the offering anyway because it would otherwise risk lawsuits from buyers of the debt offering.

For its part, Security Pacific issued a two-sentence statement saying only that there are “a number of strategic and financial options under consideration.” It added that the offering will be postponed “a few weeks” until a decision is made on those options.

The bank’s comments offered no comfort to Wall Street. “What is troublesome is the company silence,” said Frank R. DeSantis Jr., a banking analyst with Paine Webber Inc.

Early in the day, some investors speculated that the bank may have pulled the offering of 10-year notes, priced to yield 11%, because it believed that interest rates will drop soon in the wake of recent Federal Reserve Board actions. That speculation was widely discounted later, however.

Security Pacific has previously said its problems would increase in the second half of this year. Some securities analysts are going so far as to predict that the banking firm, parent of Security Pacific National Bank, will post a significant loss in the fourth quarter. In the third quarter, Security Pacific’s earnings fell 27% to $135.3 million, in part because of problem real estate and business loans in Great Britain and Australia.

Security Pacific is considered by many analysts to be especially vulnerable to real estate problems in those two countries, which are suffering sharp economic downturns. DeSantis said Security Pacific’s commercial real estate portfolio totals $800 million in Great Britain and $400 million in Australia.

The banking firm also is considered vulnerable to any big tumble in California’s real estate market. In addition, Security Pacific is a lender to several large ailing companies, such as HAL Inc. and Financial News Network. HAL, parent of Hawaiian Airlines and part-owned by former Baseball Commissioner Peter V. Ueberroth, last month disclosed that it has defaulted on $131 million in loans from Security Pacific.

Security Pacific stock finished trading on Friday at $22 per share. Other California bank stocks suffered as well, which some blamed on general uneasiness stemming from the Security Pacific announcement. Wells Fargo & Co. fell $2.875 a share to finish at $55.25, First Interstate Bancorp was off $2.125 to end at $23.875 and BankAmerica Corp. dropped $1.25 to close at $24.