Decision to Sell Thrift Is a Blow : Bailouts: The government’s move to find a buyer for Valley Federal ends a two-year recovery effort to narrow a capital shortfall.

The federal government’s decision last week to find a buyer for troubled Valley Federal Savings & Loan Assn. came as a blow to chief executive Scott A. Braly, who has fought for two years to keep banking regulators at bay while putting in place a sweeping survival plan.

Nevertheless, the federal Office of Thrift Supervision has placed the savings and loan in what’s called an accelerated resolution program, whereby Van Nuys-based Valley Federal and regulators will try to sell part or all of the institution by March. Until a sale is completed, none of the thrift’s 325 employees will be laid off and its 24 branches will remain open, Braly said.

The decision came as Valley Federal, which has $2.3 billion in assets, was nearing a Dec. 31 deadline to come up with about $125 million to meet the government’s minimum capital requirements. Braly said Valley Federal would still have fallen $110 million short of that goal, even if it had continued with its cost-cutting plans.

Valley Federal also failed to meet federal capital requirements last June, but was able to get a six-month extension. It had hoped to get a second extension, but Braly said regulators balked because of pressures to sell troubled institutions before next August, when new laws take effect barring the federal Resolution Trust Corp. from taking over failed thrifts.

Starting in August a new government insurance plan funded by premiums on savings and loans, it is hoped, will cover the costs of failed thrifts. However, critics have said not enough money will be in the insurance plan, and again, taxpayers will foot the bill.

The government intervention put an end to Braly’s efforts to get Valley Federal back on its feet, a task he estimated could take until 1994. Though the savings and loan remains technically insolvent, Braly and his management team have narrowed the capital shortfall from $265 million two years ago, mainly by slashing costs and assets.

“Yes, I’m disappointed,” Braly said. “Clearly the board and management here are frustrated at not being able to continue to leverage off the progress that has been made over the last two years.”

Still, by putting the savings and loan up for sale, federal regulators saved it from the more drastic alternative of an outright seizure. Valley Federal had been unsuccessfully seeking a buyer for nearly four years, and it had become clear that no bank or savings and loan was willing to acquire Valley Federal without government help, Braly said.

Among institutions that Valley Federal previously approached were Wells Fargo & Co., BankAmerica Corp. and Great Western Financial Corp. Braly said he expected those institutions to be among potential bidders in the upcoming government auction.

The government is expected to make a “substantial” contribution toward buying Valley Federal, Braly said, but he declined to be more specific. Greg Mitchell, who oversees the accelerated resolution program for the OTS’s western region, also declined to say how much the government expects to pay, or how much the thrift might fetch from a buyer.

Mitchell said, however, that the chances of finding a buyer were good because Valley Federal is in better shape than many other undercapitalized thrifts.

“When an institution is seized, it is a trauma,” Mitchell said. “To reduce the costs of the bailout, we’ve taken institutions with a good franchise and stable management and said a better alternative is to try to reach a resolution while the institution is open. . . . I think the chances of its being sold in its entirety are pretty good.”

Valley Federal’s problems date back to the late 1980s when it suffered big losses with a mobile-home lending business called All Valley Acceptance Co., which was formed in 1983 under the thrift’s then-executive vice president, Donald C. Headlund, who later became Valley Federal’s president.

In 1989 Valley Federal lost $138 million, wiping out its capital and prompting banking regulators to order the thrift to stop making new loans and investments. But Valley Federal struck a deal with the government that allowed the thrift to continue operating, unlike other institutions that had been similarly restricted.

Braly said the agreement to sell the thrift means Valley Federal shareholders will most likely receive nothing for their shares, which have recently been trading for less than 50 cents per share, compared to $22 only three years ago.