Specter of War Adds to Economic Caution of Financial Community

Today’s Middle East deadline already has generated some repercussions in San Diego County’s business community.

On the economic front, fears of a war that would increase oil and natural gas prices, coupled with the already gloomy economic outlook, have prompted some local companies to place expansions on hold.

“While it hasn’t stopped everybody, you’ve certainly seen tension building in the minds of investors,” said Dan Pegg, president of the San Diego Economic Development Corp. “You can feel it in the activity of some local clients we’ve been working with.”

Individual companies also have felt the impact of the U.N. deadline for Iraq’s withdrawal from Kuwait.

The military buildup has slowed repair work at National Steel & Shipbuilding because many Navy ships that had been scheduled for maintenance have been deployed to the Persian Gulf.

Although the Navy will probably reschedule those repairs, the Defense Department also must be concerned with “the potential for battle damage,” said Nassco spokesman Fred Hallett said. “And clearly Nassco has the capability of working on ships with battle damage. . . . Repairs would be a priority if the government requires assistance.”

HomeFed Savings Bank on Monday was still sorting out details of the mini-run that occurred last week after a Tijuana television station incorrectly reported that the U.S. would freeze bank accounts held by foreign nationals in the event of war.

“It’s at the point where some people are starting to return deposits,” said HomeFed spokeswoman Kay Rowan, who declined to say how much money was withdrawn by jittery Mexican nationals. Although some depositors have kept their money out of U.S. institutions, others have begun to reinvest with HomeFed, Rowan said.

HomeFed is also following--and, in some cases, exceeding--loan guidelines contained in the 1940 Soldiers’ and Sailors’ Relief Act, which allows active duty personnel and reservists to seek home mortgage interest rates of 6%. The lower-than-market rates also apply to existing car loans and credit card debt. HomeFed has received 50 requests from individuals who are seeking the 6% loans. An additional 20 have asked that other loans be reduced to 6%.

When possible, HomeFed has offered to “freeze” interest and principal payments on loans that it still holds, said Dennis Casey, group product manager for retail and wholesale loans.

“If we’ve sold the loan to an investor, we’re bound by terms of that sale, and we might not be able to freeze interest and principal payments,” Hayes said.

San Diego’s hospitals have reviewed an emergency plan that would be implemented if massive numbers of U.S. troops are wounded and local hospital beds are required for treatment, said James Lott, president of the Hospital Council of San Diego and Imperial counties.

“We’ve talked to our local military representatives at Balboa (Naval Hospital) and the military people back East,” Lott said. “We have a very solid plan. The problem now is that we don’t know the volume of casualties (to expect).”

The massive call-up of reserve units--only the third time in the past 50 years that reserves have been called--also generated questions for many local companies.

“I didn’t know what to expect at first,” said Michael Dunaway, president of Psicor, a Rancho Bernardo-based company that provides surgical services and equipment used by emergency rooms in hospitals across the nation.

When word of the call-ups first surfaced, Dunaway suspected that many of the company’s nearly 2 dozen technicians who were in reserve units would face recall. So far, however, only two technicians have been called to active duty, and the company’s ability to provide services has not been reduced, Dunaway said.

The reserve call-up has prompted many San Diego companies to draft policies that govern how long reservists receive health coverage and salaries.

Although San Diego’s handful of Fortune 500 companies probably had reservist policies in place, many smaller and younger companies lacked policies when the Gulf crisis developed, said Bruce Ferris, founder of the Compensation Practices Assn. of San Diego County, which tracks salary and benefits packages at local companies.

Ferris based that belief upon the fact that just 18 of the association’s 51 members responded to a December survey on reservist policies, Ferris said. Of the 18, six had no policies. “I suspect that the reason for that low turnout was that most companies don’t have a policy,” Ferris said.

Ferris suggested that the possibility of war presented “something of a dichotomy here in San Diego. . . . A good number of our members are in defense, and they’re really hurting because of what’s been happening” with the end of the Cold War. “They’re laying people off, yet we’re looking at a war.”

“Employers are afraid to make moves as far as new ventures are concerned,” said Gene Ewing, regional manager of the Merchants and Manufacturers Assn., a statewide group that represents more than 4,000 businesses. “We’re in a recession mode, and (fear of a war) just compounds the fact that people are afraid to make moves as far as new ventures.”

“If the price of oil shoots up tomorrow, your costs are going to go sky high,” Ewing said. “Everyone’s in a holding pattern of sorts.”