Security Pacific Predicts Sharply Lower Earnings : Banks: A rising tide of loan problems is cited. Separately, BankAmerica says its second-quarter profit will be flat.
In another jolting announcement for California banking, Security Pacific Corp. said its second-quarter profit will plunge nearly 75% as a result of rising problems with its real estate, corporate buyout and overseas loans.
Separately, BankAmerica said that its second-quarter earnings will be flat from the year-earlier quarter, when it earned $267 million, and that an increase in problem loans domestically will be more than offset by a drop in troubled overseas loans.
The announcement was unusual for San Francisco-based B of A, which normally does not publicly project its earnings. But B of A felt pressured to do so because its three major California rivals--Security Pacific, First Interstate Bancorp and Wells Fargo & Co.--disclosed rising loan problems in a series of announcements during the past nine days.
As a result of these disclosures, concerns about increasing loan problems for the state’s banks are growing. Investors are more nervous, as reflected in the 30% to 40% drop last month in the values of California bank stocks.
Some analysts and investors are warning that the state’s banks, which in the past two years have been healthier than banks in most other parts of the country, have not fully faced up to problems on real estate loans for office buildings, housing tracts, industrial parks and shopping centers.
“The big bogey is commercial real estate,” said Thaddeus W. Paluszek, bank analyst with Kidder, Peabody & Co. in New York.
Security Pacific, the nation’s fifth-largest banking company, said its quarterly earnings would drop to $50 million from a year-ago profit of $195 million, in part because of a more fragile commercial real estate portfolio.
The Los Angeles-based banking firm said it will take about $200 million in commercial real estate loans and transfer them into the “non-performing” category, citing a need to “anticipate continued weakness in the California economy.” That means that although borrowers are making their payments, doubts that they will continue to do so are growing.
Bank analysts said the move indicates that it was prompted by regulators. But a Security Pacific spokesman denied it.
Senior executives at Security Pacific were unavailable to comment. In a statement, Chief Executive Robert H. Smith said the results reflect the weak domestic economy as well as prolonged sluggishness in Australia and Great Britain, two countries where Security Pacific operations have been hit hard in recent quarters.
Smith suggested that the performance of Security Pacific’s loans during the next few quarters is uncertain because it hinges on the timing and strength of the economic recovery.
Overall, Security Pacific indicated that the amount allocated for potential losses on loans would be about $371 million and that the amount of problem loans would increase by about $658 million.
Security Pacific’s disclosure on Wednesday follows the announcement earlier this week by First Interstate, its cross-town rival in Los Angeles, that it will lose $80 million in the second quarter and set aside about $295 million for problem loans, largely because of problems with its Nevada and Oregon banks. Last week, Wells Fargo & Co. disclosed a big increase in problem commercial loans, many funding large-debt corporate buyouts.
Security Pacific, which most analysts had projected to earn about $100 million, lost $1.125 to $21.25 in trading on the New York Stock Exchange. B of A, the nation’s second-largest banking company which made its announcement after the stock market closed, fell $2 a share to $33.50.
Elsewhere, bank stocks in the state were mixed. Wells Fargo inched up 87.5 cents a share to $65.375, while First Interstate gained 12.5 cents a share to $26.625. Union Bank dropped $1 to $24.50 a share, while Imperial Bancorp fell 50 cents to $9.75.
