First Interstate Warns Profit Could Be Hurt

First Interstate Bancorp revealed Thursday that earnings for the third quarter ending Sept. 30 could be hurt by “material” charges stemming from its continuing restructuring.

In addition, the Los Angeles-based banking firm said in a filing with the Securities and Exchange Commission that it could experience higher-than-expected credit losses in the second half of the year because of continuing uncertainty in the California real estate market.

“The corporation is presently studying a number of restructuring activities which are expected to be finalized during the third quarter,” the bank said in the quarterly SEC filing. “Finalization of such plans will result in a restructuring charge in the third quarter which may be material to the corporation.”

The report comes on the heels of a poor second quarter, when the bank posted a loss of $80.3 million. Plagued by real estate loan problems, the bank is undergoing a restructuring plan that began 18 months ago.

Along with most other bank stocks, First Interstate shares dropped Thursday as investors took profits on price run-ups after the merger proposal of BankAmerica Corp. and Security Pacific Corp. First Interstate closed down 62.5 cents a share at $34.375 in trading on the New York Stock Exchange.

The bank said the charge for restructuring could include costs such as consolidating data processing operations.

“They may want to get the consolidation out of the way in one fell swoop, which could improve earnings power compared to what it otherwise would have been,” said Sandra Flannigan, a banking analyst with Alex. Brown & Sons.

First Interstate also noted in the report that the California real estate market continues to look gloomy. “The California real estate market . . . retains elements of unpredictability that may result in changes in the level of non-performing assets over and above the generally upward trend expected in the second half of the year,” the company said. “Such uncertainties in that market may result in higher credit losses.”

Flannigan said the real estate problems are not unexpected. “Expectations for improvement in the loan portfolio or earnings are very low,” she said.