Great American Shortfall May Be the Final Blow
Raising anew the specter of a federal takeover, Great American Bank said Wednesday that it is already $100 million short of complying with a reorganization plan that was approved by regulators just three months ago.
Only last November, the federal Office of Thrift Supervision approved Great American’s reorganization plan, a scheme based on the sale to Wells Fargo of all 130 of its California branches. The approval virtually assured the S&L; of survival as an independent institution through 1994--as long as the S&L; remained in compliance with minimum capital levels projected in the plan.
But, on Wednesday, Great American said preliminary results for its fourth quarter ended Dec. 31 indicate that higher than expected loan loss provisions will leave it $100 million short of the minimum capital requirements contained in the plan. The shortfall comes despite Great American having booked a $107-million gain on the sale of the first 92 branches to Wells Fargo in November.
Great American’s disclosure of noncompliance casts new doubt on its survival. One stock analyst, Campbell Chaney of Sutro & Co. in San Francisco, said that whether Great American will be seized by federal regulators is no longer a question of if, only when.
In its statement on Wednesday, Great American said that its noncompliance “is a material violation of a cease-and-desist order” issued by the OTS in November and “could subject Great American to a number of possible sanctions, including the appointment of a conservator or receiver.”
The S&L; said its chief executive, Robert L. Kemper, has met with OTS officials to “discuss the issue” of noncompliance but would neither elaborate on the discussions nor comment on the likelihood of a takeover.
A seemingly bottomless pit of bad real estate loans in Great American’s Arizona and California portfolios has led to losses of more than $400 million since 1989, leaving the once-proud S&L; greatly weakened.
As of Sept. 30, Great American had negative $17.7 million in tangible capital, making it technically insolvent according to the most stringent standard applied by regulators.
Great American clearly pinned its hopes for survival on the sale of its California branches to Wells Fargo, hoping the gain on the sale would give it the cushion it needed to somehow gather itself and survive. In addition to the $107-million gain it booked in November from the sale of the first 92 branches, Great American plans to sell the remaining 38 branches later this year at a projected gain of $30 million.
Analysts were skeptical about the S&L;’s chances from the outset. They note that the sale of the branches and about $6.3 billion in deposits to Wells Fargo leaves Great American a much shrunken institution with more than 20% of its assets classified as non-earning or in danger of becoming non-earning.
Those fears seem to be borne out by Wednesday’s disclosure. Although the S&L; declined to say how much its fourth quarter net profit or loss would be, indications are that the troubled S&L; will report an operating loss of up to $90 million. Only the extraordinary $107 million gain for the branch sale will save it from a huge net loss.
In its statement, Great American said it expects to report a positive tangible capital balance as of Dec. 31. Since its balance was negative $17.7 million on Sept. 30, the S&L; apparently expects a net profit of at least $17.7 million for the fourth quarter.
The S&L; announced it was in noncompliance after the stock markets had closed. Great American Bank stock closed at $1.375, up $.25 per share in New York Stock Exchange trading.
