RETRENCHMENT AT SECURITY PACIFIC : More Banks, S&Ls; Expected to Boost Loss Reserves
Security Pacific Corp. is not the first banking firm to announce that 1990 earnings will be badly hurt by souring loans and additional loan-loss reserves. And it’s not likely to be the last.
Dozens of other big banks and thrifts--already resigned to a year of disappointing earnings and lackluster stock performance--are likely to make similar announcements in coming weeks, analysts said. Up to one-fifth of the nation’s large and mid-sized banks are primed to add significant amounts to reserves--a cushion for loan losses--which is likely to decimate fourth-quarter earnings, several bank analysts said. And virtually all of the nation’s biggest thrifts will do the same, savings and loan experts said.
“We are assuming that nearly everyone is going to add to reserves,” said Jim Wilson, an S&L; analyst with Montgomery Securities in San Francisco. “We expect all the major (thrifts) to show a loss for the quarter because of it, and they’ll probably bring year-end earnings right down to zero.”
Savers and most borrowers will generally not be affected by the losses and poor earnings, analysts noted. However, real estate developers and corporate takeover artists may find it harder to borrow money as banks restrict credit to riskier ventures.
Even with the writeoffs, most of the big banks and thrifts as of now are far from being in danger of insolvency or failure. But a severe, prolonged recession could result in even more writeoffs that could damage industry health.
The companies most likely to announce writeoffs within the next few weeks include Los Angeles-based H. F. Ahmanson & Co., parent of Home Savings of America; it is expected to take a $147-million addition to reserves, causing it to post about an $80-million quarterly loss, Wilson said.
Montgomery Securities is also projecting that Los Angeles-based CalFed, parent of California Federal Bank, will add $64 million to reserves and post a $112-million quarterly loss. GlenFed, Great Western Financial and Golden West Financial--all among the nation’s biggest thrift companies--will set aside a total of $300 million during the quarter, according to an analysis by the San Francisco-based investment house. GlenFed is parent of Glendale Federal Bank, while Great Western Financial is parent of Great Western Bank and Golden West is parent of World Savings.
Although some of the nation’s biggest banks--including Chase Manhattan--have already announced plans to boost loan-loss reserves and reduce profits, more such announcements are on the horizon, analysts said.
New York-based Citicorp, the nation’s biggest banking company, is widely expected to announce a substantial writeoff within the next several weeks, analysts said. And a wide variety of smaller banks headquartered in the Northeast and South could also follow suit, said Thaddeus Paluszek, bank analyst with Kidder, Peabody & Co. in New York.
However, the other big California banking firms--Wells Fargo & Co., BankAmerica and First Interstate Bancorp--probably do not need to boost reserves, several analysts said. These companies already have more than enough cash set aside to handle all foreseeable loan problems, according to Paluszek.
Although the rush to add to reserves seems to be sweeping the financial services industry, the problems these banks and thrifts are trying to address vary widely. Some banks, such as Security Pacific, are grappling with diversification efforts gone awry. Some have souring commercial real estate loans, while others have been hit hard by bad business credits.
But the reason for the rush to put the money away now instead of later is standard, analysts said.
This year has simply been bad for financial company earnings and for financial stocks. Consequently, many institutions believe that it is in their best interests to push all their bad news into this already rotten year, Wilson said.
After its announcement, Security Pacific’s stock price shot up $1 per share to close at $23 in New York Stock Exchange trading Monday.
Other bank and thrift stocks also rose. Citicorp’s stock climbed 25 cents per share to finish at $15, while Wells Fargo’s stock rose $1.25 per share to end at $56.50 and BankAmerica gained 50 cents per share to close at $24.50. Stocks of H. F. Ahmanson and Golden West both rose 37.5 cents per share, to $13.875 and $24.375, respectively.
