Coast S&L; Profit Falls 50%; It May Put Itself on Block
Coast Savings Financial, struggling to meet federal capital requirements, announced Thursday a 50% drop in first-quarter profit and said it has hired a Wall Street investment banking firm to explore capital-raising alternatives that may include a sale of the firm.
The Los Angeles-based parent of Coast Federal Bank said it earned $2.9 million in the quarter, down from $5.8 million a year earlier. The latest result was boosted by a $10.1-million gain on the sale of loans and mortgage-backed securities.
Coast, which says it is the state’s 12th-largest thrift, warned in December that it was having trouble meeting stiffer federal rules for capital, the shock absorber that financial institutions must maintain to protect against losses.
Coast meets two capital measurements--but not by much--and misses on a key standard pegged to the riskiness of its loans and other assets. What’s more, capital standards will become more stringent at the end of the year, and regulators are being tougher on institutions that fail to comply.
Industry sources said Coast’s management has been feeling growing presure from the Office of Thrift Supervision since late last year. The OTS has yet to approve a plan that Coast filed March 1, outlining measures it can take to meet the standards.
Coast said it hired Goldman, Sachs & Co. to assist in looking at ways to raise capital, including a possible sale or merger.
The thrift bet on real estate loans and investments in the 1980s, and dabbled in risky high-yield junk bonds. Its emphasis lately has been on adjustable-rate home mortgages, but the earlier risky bets continue to haunt it.
S&L; analysts said Coast has long promised more than it has delivered, and its first-quarter results reflect a series of disappointments.
“The next quarter is always going to be great, and it never is. This one is no exception,” said Peter Treadway of Smith Barney, Harris Upham & Co. in New York.
Industry executives and analysts said Coast’s future is growing more uncertain, adding that Goldman Sachs faces a difficult task.
They said investors would undoubtedly shun efforts by Coast to sell stock or debt to bolster its finances because of the risk. Finding a buyer or merger partner is no sure bet either, in part because suitors may fear discovering future loan problems and because there is a buyer’s market for failed thrifts.
In addition, the observers said, barely meeting capital standards means that Coast is unable to take risks to generate substantial profit later that would help bolster its condition. Shrinking as much as Coast has, they added, no doubt has resulted in selling good assets that could earn income in later years.
Despite its problems, Coast, with about $10 billion in assets, has made progress in revamping and shrinking.
It is selling its 19 San Diego offices to Home Savings of America for a $20-million premium, and it eliminated 114 full-time positions, or 6% of its work force, in March. In addition, its top two executives, Chief Executive Ray Martin and President Gerald D. Barrone, took pay cuts of about 10% Feb. 1.
