CalFed Predicts $140-Million Loss in Quarter : Thrifts: The parent of California Federal Bank blames soured commercial real estate loans. It also expects a $270-million loss for the full year.
CalFed Inc., in yet another sign that commercial real estate loans are haunting California’s savings and loans, disclosed on Thursday that it expects to lose about $140 million in the fourth quarter and $270 million for all of 1990.
The latest loss at CalFed, the nation’s third-largest thrift as of Sept. 30, will result primarily from about $200 million it set aside for reserves to cushion against potential problems on commercial real estate loans at its California Federal Bank subsidiary.
The news is the just the latest in a string of problems besetting the Los Angeles-based thrift in the last year. The expected fourth-quarter loss will be CalFed’s third consecutive quarterly deficit. Until the second quarter of last year, CalFed had gone eight years without a quarterly loss.
Like many California thrifts, CalFed’s real estate losses so far have been mostly outside the state. They almost exclusively involve loans made on income-producing commercial real estate projects, such as offices, shopping centers, hotels and apartment buildings. Home loans, which make up most of the loans made by CalFed and other major California thrifts, are considered much safer risks, although economists expect some rise in default rates if the economy slips much further.
In an interview, CalFed Chief Executive Jerry St. Dennis said about 75% of the real estate loans triggering CalFed’s $200-million reserve are outside California. He declined to specify where the loans are, except to say they are mostly on the East Coast and in the Southeast.
According to sources familiar with the thrift, one of CalFed’s biggest real estate headaches is a $160-million loan on the Wall Street headquarters of Drexel Burnham Lambert, the high-flying investment bank that collapsed last year and now is in bankruptcy proceedings.
Four months before it collapsed in February, Drexel arranged with its landlord, the huge Canadian real estate firm Olympia & York, to continue leasing space until the year 2004 in the 39-story building at 60 Broad St. CalFed’s loan on the building makes up nearly all of the thrift’s commercial real estate portfolio in New York, said to be about $166 million.
Despite the fourth-quarter loss, CalFed said it expects California Federal Bank to meet federal requirements for capital, the financial safety net that thrifts must maintain. To that end, it said Thursday that it is pumping $77 million into the S&L.; That money is believed to have come from proceeds from the sale of a London-based insurance subsidiary early last year.
The disclosure of the loss comes as regulators with the federal Office of Thrift Supervision have wrapped up an examination of the thrift. The Federal Deposit Insurance Corp. now is beginning a review as well, CalFed confirmed.
Both the OTS and FDIC have been cutting a path through the state’s thrift industry, putting most institutions through much more rigorous examinations. Detailed examinations by both agencies are said to be going on at Great Western Financial in Beverly Hills, and by the FDIC at GlenFed Inc. in Glendale.
One thrift analyst, who asked not to be identified, said he does not expect the FDIC to force CalFed to set aside much more money for problem loans.
“They probably aren’t going to change anything. Usually the one who gets there first (the OTS) sets the precedent,” he said.
The bulk of the $200 million being allocated is believed to be for “general reserves,” in which money is allocated for unspecified losses that might occur on real estate loans rather than for specific losses. St. Dennis said CalFed voluntarily set aside the money for the potential losses and was not ordered to do so by regulators.
Many thrifts, such as Coast Federal Bank, have already set aside money for possible real estate losses. Some analysts believe that there is a good chance that every major thrift in the state could post substantial losses either in the fourth quarter or the first quarter of this year as they set aside more money for real estate losses in anticipation of their examinations or at the prompting of regulators.
Peter Treadway, an analyst with Smith Barney, Harris Upham & Co., said he is projecting that CalFed will not earn money in 1991. Treadway said he expects the thrift to set aside additional money for real estate problems. He added that he is concerned that the thrift may be forced to sell good assets that are important to its future profits.
CalFed has been going through a substantial restructuring since 1989. In September, it disclosed it is selling its annuity and life insurance subsidiary to an Indiana firm for $140.2 million.
CalFed’s projected loss of $270 million for 1990 contrasts with earnings of $82.4 million in 1989. CalFed’s stock closed at $3.375 a share on Thursday, down 50 cents.
