Great American Loss Erases Most of Branch-Sale Gain
Troubled Great American Bank reported a $46.8-million first-quarter loss Tuesday, a deficit that makes it insolvent under regulators’ most stringent capital measurement and heightens the already-looming threat of a government takeover.
The loss lowers Great American’s tangible capital to minus $4.7 million, effectively wiping out shareholders’ remaining investment and erasing much of the gain from last year’s sale of 92 Southern California branches, including all San Diego offices, to Wells Fargo Bank.
Although Great American remains headquartered in San Diego, it will have no branches in California after the second phase of its sale to Wells Fargo--totaling 38 branches--is completed in July.
Unless Great American’s fortunes improve dramatically, the thrift would seem headed for some form of government intervention, possibly a takeover. The S&L; is tens of millions of dollars short in all three minimum regulatory measurements of capital, the financial buffer a bank or savings and loan keeps to protect it from losses.
But observers say regulators are unlikely to seize the S&L; until after the California branch sales to Wells Fargo are completed.
“It seems to me that whether or not we are allowed to go forward after the second phase is completed will depend on how we do between now and then,” Robert Kemper, Great American’s chairman, said in an interview.
Great American completed the first phase of the sale, involving 92 branches, on Dec. 1. The remaining 38 California branches are to be sold to Wells Fargo on or before July 31.
Once complete, the branch sale will leave Great American a much shrunken institution, with 81 branches in Arizona, Washington and Colorado. Assets had shrunk to $10.1 billion as of March 31, down from $10.5 billion at the end of 1990 and from $15.9 billion at the end of 1989. Great American employs 1,714 people, less than half the payroll of 3,829 a year ago.
The branch sale was designed as Great American’s last-ditch effort to shore up a capital position ravaged by two years of losses caused by eroding real estate markets in Arizona and California. Great American lost $173 million in 1990 after setting aside loan-loss provisions totaling $244.5 million.
From a capital standpoint, the first-quarter loss leaves Great American where it started before the sale of the branches to Wells Fargo. At the end of the third quarter last year, Great American had a negative $17 million in tangible capital. But a $108-million after-tax, fourth-quarter gain booked from the first phase of the branch sale lifted the S&L; to a positive capital level.
At Great American’s annual shareholders meeting Tuesday, Kemper said that if the S&L; can manage to break even on operations, its tangible capital will increase by $111 million due to the gain from selling the second group of branch offices, and due to tax credits.
But, given Great American’s weakened earning power, the S&L; is likely to continue to lose money on operations in the short term. Non-performing assets--loans in foreclosure or 90 days or more delinquent--now total $1.4 billion, or 14% of assets, a dangerously high level. Classified assets, a broader category of problem loans, are up to $2.6 billion, or 26% of all assets.
That high a percentage of problem loans--exacerbated by the sale of top-performing loans to Wells Fargo--reduced Great American’s net interest income over the first quarter to only $10.3 million, down from $58.4 million over the first quarter of 1990. Net interest income is the difference between interest earned on assets and investments and interest paid out to depositors.
Kemper also noted a bright sign: Great American deposits increased by more than $490 million over the first quarter, reversing the deposit drain seen during most of 1990.
