Glenfed Goes Back to Basics in Wake of Major Loss : Thrifts: The holding company, stung by problem real estate loans in Florida, says slimming down will require painful layoffs and the sale of assets.
In June, 1985, about 2,000 people flocked to sup on beef and listen to the Oak Ridge Boys at the Southfork Ranch in Parker, Tex., the setting for the television show “Dallas.” Last month, Glenfed Inc. had a different kind of party at Southfork: a foreclosure sale.
The ranch’s owner defaulted on an $8.2-million loan from Glenfed early in 1990, and now the ranch is just another problem asset on Glenfed’s books.
And Glenfed, whose main subsidiary is Glendale Federal Bank, the fourth-largest S&L; in the nation with $24.4 billion in assets, would like to sell not only the ranch but also Glenfed Financial, the subsidiary that made the loan. So far, the thrift holding company hasn’t been able to sell either.
So goes one small part of Glenfed’s plan for a major restructuring in the wake of a $140.8-million loss in its fiscal second quarter that ended Dec. 31--a loss brought on by problem real estate loans, especially in Florida.
Glenfed announced in mid-January that it dramatically boosted its reserves by $153 million to cover potential losses from loans that may go sour. But whether those reserves will prove adequate has more to do with the course of the economy than the thrift’s own management.
“We feel very comfortable with what we’ve done,” said Norman M. Coulson, chief executive of Glenfed. “But if the market continues to deteriorate beyond what we projected, I can’t say we’ve done it all.”
Glenfed’s restructuring also means that the company will return its focus to the basics of the savings-and-loan business, namely taking retail deposits and making home loans. But honing down will involve painful layoffs and selling assets--including entire business lines and quirky properties such as the Southfork Ranch. In a recession, the changes won’t come quickly or easily.
The restructuring is intended to bolster Glenfed’s financial position by increasing both its loan loss reserves and its capital, that is, the financial cushion Glenfed must have on hand at all times to protect itself against losses.
Federal regulators have been raising capital minimums for thrifts in the wake of the nation’s S&L; crisis. Meeting capital standards is a crucial challenge for such thrifts. While an S&L; can keep operating if it does not meet the capital standards, the problem may keep investors and depositors away.
Glenfed, in fact, is one of several Southern California S&Ls; that have been hurt by real estate loans and are thus meeting federal capital standards with little breathing room. Like Glenfed, Coast Savings Financial and Calfed, the parent of California Federal Bank, have taken earnings hits from problem loans on commercial real estate such as offices, apartment buildings, hotels and malls.
Much of Glenfed’s restructuring will involve spinning off businesses started or bought in the 1980s, when Glenfed quickly diversified out of simple deposit-gathering and mortgage-lending because interest-rate conditions made the thrift’s core business unprofitable. “They were swept up in the trend of the ‘80s,” said E. Gareth Plank, a thrift analyst with Dean Witter Reynolds in San Francisco.
But now a strong reason to sell off the “non-core” businesses is that the federal government considers them to be too risky and requires Glenfed to have extra capital to cover that risk.
As part of the restructuring, Glenfed plans to eliminate about 600 jobs, which will result in about 500 layoffs by July 1. In addition, Glenfed plans to sell three divisions: Glenfed Development, a house-building division with about $300 million in assets, as well as Glenfed Financial and Glenfed Capital, two divisions with combined assets of about $700 million, both of which made business loans. Glenfed also recently sold a real estate brokerage unit and agreed to sell its North American Title unit, but hasn’t yet announced terms of the deals. (Glenfed had planned since last year to sell the divisions in one piece, but recently decided it would have to sell them in parts.)
The cuts, to be finished in 18 months, are designed to reduce Glenfed’s expenses by $160 million each year. Glenfed also announced other writedowns totaling $231 million.
After mulling the plan, investors seem to have decided that it bodes well for Glenfed. Glenfed’s stock fell as low as $3.50 a share on the New York Stock Exchange a few days after the announcement of the loss and restructuring, but has since more than doubled to close at $7.25 on Monday.
“I think they needed this plan,” said Campbell K. Chaney, a former bank examiner and now a thrift analyst with Sutro & Co. in San Francisco. “I think Glenfed is a survivor.”
Glenfed now meets the various federal capital standards set by the Office of Thrift Supervision. But the office has said it will soon ratchet up one capital measure. And another capital standard is already scheduled to increase at the end of 1992. Glenfed wouldn’t meet either standard if it was imposed today.
But Coulson said Glenfed will be able to meet the standards by retaining savings from the restructuring as capital. If necessary, Glenfed will also sell off some loans to stay in compliance with federal standards, Coulson said.
Glenfed has been particularly hurt by the disastrous downturn in the real estate market in Florida. In the early 1980s, Glenfed expanded aggressively into Florida by acquiring two thrifts in the state. But now Glenfed says 40% of its $609.6 million in problem assets are in Florida.
Florida has entered a real estate slump that has not shown signs of easing. “Things have gotten worse,” said Lawrence R. Sherry, a managing partner of the real estate consulting company Kenneth Leventhal in Miami. “I believe you’re going to see an abundance of foreclosures and bankruptcies in the next few months.”
Coulson said most of Glenfed’s problem loans in Florida were made on apartment buildings on the west coast of the state. But one of Glenfed’s most prominent problems is a $25-million loan made to a Florida developer to develop a 53-acre parcel in Miami as a marina and residential complex. Glenfed foreclosed and now must develop the property itself to get its money back.
As Glenfed tries to undo its diversification, a particular problem will be selling its Glenfed Development Corp. unit. At its height, the unit, established in 1971, built 500 houses a year. The division was profitable up until the time Glenfed decided to sell it, in 1989.
But with a flood of thrift-owned development companies for sale across the country and real estate in a slump, there’s little chance that Glenfed can sell the company whole.
So Glenfed has decided to sell the division’s assets piecemeal, which means that the company won’t get as much money for the land and houses. For example, Glenfed saw “no action at all” trying to sell 43 houses in a development in San Juan Capistrano in Orange County, Coulson said. Glenfed auctioned them off on Dec. 9, selling them all in three hours, at lower prices.
An indication of whether government regulators think Glenfed has gone far enough in its restructuring plans will come when the Federal Deposit Insurance Corp. finishes its examination of the thrift in March.
Glenfed denies that regulators dictated any part of the restructuring. But Keith P. Russell Jr., the thrift’s president and chief operating officer, said Glenfed would have little reason to put off tough moves with regulators poring over the books. “Either you do it or they’ll do it for you,” Russell said.
