State’s Banks Post Big Loss in 4th Quarter : Economy: Real estate loans helped cause $379 million in red ink. Banking profits for the year fell 80% in California while rising 15% nationwide.
California banks, grappling with troubled commercial real estate loans and a weakening economy, suffered steep losses of $379 million during the fourth quarter of 1991, regulators said Wednesday.
For all of last year, banking profit in the state plunged 80.6%, even as the industry’s earnings increased 15.5% nationwide, said the Federal Deposit Insurance Corp.
The poor performance is linked to the continued real estate slump in California, a slump that hit the state later than the rest of the nation. The state’s financial institutions are not yet sharing in the recovery enjoyed by most of the nation’s banks and thrifts.
“The commercial real estate market in California is still substantially overbuilt,” said Bram Goldsmith, chairman of City National Bank in Beverly Hills. “You’ve probably got a 20% to 25% vacancy rate in some areas.”
The losses of $379 million at California banks contrasts with profit of $447 million during the same period in 1990. Profit for the year totaled $659 million, down dramatically from $3.4 billion a year earlier.
Nationwide, banks reported profit of $18.6 billion last year, compared to $16.1 billion in 1990; fourth-quarter profit hit $3.7 billion, up from $907 million the year before, the FDIC said.
Earlier this week, private sector thrifts reported net earnings of $1.97 billion, the first profit for the savings and loan industry since 1986. California thrifts also reported profit last year of $218.4 million. But federal regulators expressed concern that several large California S&Ls; were still struggling and bad real estate loans continued to climb.
Despite the quarterly bank losses, federal regulators and banking officials said California is unlikely to suffer the kind of severe drop in real estate values that plagued institutions in the Southwest during the late 1980s and the Northeast in the last two years.
“There had always been some concern about California because of the history of rapid real estate growth in particular parts of the state,” said James Chessen, deputy director for policy development for the American Bankers Assn. “The state went through a big period of high inflated values and there has been concern about how long it could last.”
However, nobody believes that “California is waiting to fall off the cliff,” Chessen said.
The state’s banks had 7.1% of their real estate assets classified as troubled--either overdue in payments or foreclosed. This was less than the national average of 7.48% and significantly lower than the New England states and New York.
California’s bank loss figures were swollen by large losses at three of the state’s four biggest banks: Security Pacific, Wells Fargo and First Interstate. The parent companies of the three banking firms lost a combined $700 million, much of it because of problem real estate loans.
Security Pacific, which is clearing its books of troubled loans before its expected acquisition in late spring by BankAmerica Corp., posted the biggest loss, $409 million. Wells Fargo lost $231 million after undergoing an extensive review by regulators of its real estate loans. First Interstate lost $59.9 million, largely because of the state’s weak economy and depressed real estate market.
Even some banks that historically have been among the industry’s most profitable, such as the mid-sized City National Bank, have been unable to escape losses caused by the decline in commercial real estate values. City National lost $23.8 million in the fourth quarter.
Goldsmith said that although many banks have clearly identified their worst real estate problems, the market remains fragile. He noted that law firms and accounting firms are shrinking, mergers are boosting the amount of empty office space and landlords are compelled to offer bargain rates and generous concessions to lure tenants.
While the state’s banks suffered a downward slide, “at least the rate of deterioration did show a slowdown,” said Ross Waldrop, an FDIC analyst.
Troubled loans grew rapidly from $7.4 billion at the end of 1990 to $11.3 billion in September. But in the fourth quarter, the volume of troubled loans increased only slightly to $11.7 billion at year’s end.
Bush Administration officials have been buoyed by the performance of banks nationwide. Deputy Treasury Secretary John E. Robson, at a meeting Wednesday of the National Council of Community Bankers, urged banks to become more aggressive in making loans.
Rosenblatt reported from Washington and Bates from Los Angeles.
