Insolvency May Be Near for HomeFed

The parent of HomeFed Bank said Tuesday that it expects to report a massive loss for its third quarter, possibly wiping out $515 million in stockholders’ equity, leaving the thrift insolvent and a likely candidate for a federal takeover.

HomeFed, the nation’s seventh-largest savings and loan, also said that federal regulators had placed the institution under strict operating restrictions as a result of the worsening of its financial condition in the past three months.

The thrift, a unit of HomeFed Corp., said the loss for the three months ended Sept. 30 is the result of huge reserves being set aside to cover bad commercial real estate loans and costs related to a wide-ranging restructuring of its operations.

“We have more and more guys who can’t pay their loans,” said Thomas J. Wageman, the S&L;’s chief executive.

The loss, which was not quantified, is expected to leave HomeFed with negative capital by all three regulatory measurements. The thrift agreed to a regulatory cease-and-desist order that requires it to meet federal capital requirements by March 31.

One industry source estimated that the amount of capital needed would be between $600 million and $800 million, a sum so great that it was highly unlikely that a “white knight” could be found to rescue HomeFed.

“HomeFed’s chances of finding an investor are very slim,” said Campbell Chaney, an analyst with Sutro & Co., an investment banking firm in San Francisco.

But Wageman said he and investment bankers Kidder, Peabody & Co. are still hopeful that an investor can be found to buy a controlling interest in the S&L.;

Trading in HomeFed stock was halted shortly before noon on the New York Stock Exchange and was not resumed. The last trade was at $1.50 per share, off 12.5 cents.

In a statement, HomeFed said the “aggregate amounts of such loss provisions and restructuring charges . . . have not been finally determined, but they are expected to significantly affect, and possibly eliminate, the company’s stockholders’ equity.”

The regulatory order issued by the Office of Thrift Supervision also nullified certain employment contracts, severance agreements and bonus plans and certain other compensation plans for HomeFed employees. OTS described all such agreements signed after Dec. 31 of last year as “an unsafe and unsound business practice.” About 160 current and retired employees are affected by the order.

The order also requires HomeFed to “add outside directors to its board who have experience with and knowledge of large financial institutions.” HomeFed now has only one outside director.

HomeFed, which will not report its third-quarter loss until the end of October, lost $286.4 million in the first six months of 1991 and $247.5 million in 1990, losses that have brought the 209-branch thrift to the brink of insolvency.

HomeFed, once an industry powerhouse, has stumbled largely as a result of bad real estate loans. Most recently, the thrift said it had been hurt by writedowns of loans in the Middle Atlantic and Southeastern regions, which have seen real estate values plunge in recent months.

Wageman said the percentage of nonperforming assets increased over the third quarter, but he did not say by how much. As of June 30, fully 10% of HomeFed’s $16.4 billion in assets were in default or in foreclosure.

One analyst, who asked not to be identified, said the thrift will probably be taken over shortly after the March 31 deadline set by regulators “despite the best efforts of the turnaround team brought in this year.” Wageman was made chief executive after regulators forced his predecessor, Robert Adelizzi, to resign in May.

To make HomeFed as attractive as possible to outside investors, the thrift is marking down the value of its fixed assets, including its 209 branches. In writing down the value of branch offices, Wageman is taking an unusual approach, Chaney said.

Wageman said he does not want to sell off HomeFed’s branch network, as Great American Bank did in a desperate but unsuccessful bid to survive. Great American sold its 130 California branches to Wells Fargo for $491 million but was taken over anyway in August, shortly after completing the second phase of the sale.

“The sale of branches is not what we are looking at,” Wageman said. “The sale of branches is a sale of the franchise and we need to leverage the franchise, not dismember it. The bank is worth more with its statewide presence.”