Regulators Force Downey to Write Down Portfolio : Thrift: The resulting after-tax charge will wipe out the S&L;’s $23.5-million profit for the first half of the year.

Pressured by regulators, Downey Savings & Loan said Friday that it would write down the value of its portfolio of government securities by $16.2 million and put another $17.9 million into reserves for possible loan and real estate investment losses.

The actions, prompted by a routine examination by the Office of Thrift Supervision, result in an after-tax charge of $32.4 million for the third quarter, ending Sept. 30.

The charge will more than wipe out the $23.5 million profit that the Newport Beach thrift posted for the first six months.

On an ongoing operating basis, Downey remains profitable and still exceeds the three tough federal standards for capital adequacy, said David T. Hansen, the thrift’s chief financial officer.

Downey has long been regarded by industry analysts as one of the nation’s better-managed S&Ls;, but the issues raised by regulators mark the third straight year that Downey and federal auditors have tangled over the thrift’s operations and accounting procedures.

Sources have said previously that auditors have pored over the S&L;’s books looking for any hints of problems.

“Downey appears to have a strained relationship with the OTS, which results in stricter reviews. They don’t cut you any breaks,” said Campbell Chaney, an industry analyst with Sutro & Co. in San Francisco.

“This (loss) is a setback for Downey,” Chaney said, “but the problem that needs to be solved is nothing financial; it’s with regulators. These guys need to sit down with regulators and bury the hatchet.”

He said Downey’s stock will probably drop as much as $2 a share when the market reopens on Monday. The news was released after the stock market closed for the day. Downey’s stock closed at $16.875 a share, down 12.5 cents from Thursday’s close.

Chaney said he expects Downey to break even on its earnings for the year. Hansen would not speculate.

The latest tussle with regulators involves the S&L;’s $252-million portfolio of long-term government securities. Though the portfolio is held for long-term investment, regulators wanted the thrift to value the securities by their current market value.

Now that the portfolio is classified at today’s lower value, Hansen said the company will try to sell the securities.

In late 1989, after Congress had passed a law restructuring the thrift industry, regulators and Downey argued about the value of the S&L;’s real estate holdings. The law requires S&Ls; to sell such direct investments within five years. The result was a substantial fourth-quarter loss that year.

Last year, regulators tried to reduce the value of Downey’s headquarters building because the thrift did not occupy more than 50% of it.