Amid Troubled Times, Thrift Firms Cut Losses : Southland: With more layoffs in aerospace industry expected, S&Ls; fight to weather the storm.

With a depressed real estate market and continued layoffs in the aerospace industry, California thrifts are fighting to shed their troubled assets and boost reserves until the nightmare ends.

Because the state is so large and has such a diverse economy, some regions are hurting worse than others, said Richard H. Deihl, chairman and chief executive of Los Angeles-based H. F. Ahmanson Inc.

“Northern California appears to be experiencing not only a bottoming out, but the beginning of a turnaround,” Deihl said. “We don’t see that in Los Angeles.”

Merrill Lynch analyst Jerome Gitt agreed. “Southern California is a disaster, while the northern end is doing fine,” he said.

Southern California is a more accurate indicator of the state’s economy because two-thirds of the business and population is concentrated in that area, said Campbell Chaney, an analyst with Hancock Institutional Equity Services.

The state’s real estate market will see a turnaround “basically when the aerospace industry stops losing jobs,” said Lawrence R. Vitale, Kemper Securities Inc. analyst.

McDonnell Douglas Corp. recently said it plans to cut 4,000 jobs at its Douglas Aircraft unit in Long Beach. The commercial aircraft arm already trimmed its work force last year to about 19,000 from about 30,000.

After Boeing Co.’s announcement last week that it will cut production of its 747-400 jetliner, both Los Angeles-based Northrop Corp. and Rockwell International Corp. of Seal Beach said they expect job cuts or an earnings pinch.

Northrop, which makes the main fuselage section for the jumbo jet, said it expects to cut 200 of the 2,200 jobs in the program. Rockwell said profit and sales in 1994 and 1995 will be hurt as a result of the Boeing cut.

Vitale also said state regulators need to change their attitude on workers’ compensation laws because the regulations are causing companies to leave the state. “It’s costing them 30% of their overhead,” he said.

In addition, Southern California real estate prices are under even more pressure with the July seizure of Homefed Bank of San Diego, said Stephen J. Trafton, chairman and chief executive of Glenfed Inc.

“We think the last major thing this area needs is another costly resolution,” Trafton said.

Last month regulators began dismantling Homefed, the largest thrift to be seized, selling 56 Northern and Central California branches for $34.7 million. The thrift’s remaining 144 branches will continue to operate under Resolution Trust Corp. supervision.

With these added economic strains in addition to the national recession, California real estate prices will continue to fall, said Bob Villanueva, director of forecasting with the National Assn. of Home Builders.

For 1993, Villanueva is predicting a 25% decline in single-family home prices for Southern California, and a 10% decline in the northern part of the state.

Some analysts doubt that a full-fledged recovery will occur. “I don’t think you’re ever going to see the 5% to 7% economic growth we had in the 1980s,” said Hancock’s Chaney.

With the declining real estate prices, thrifts haven’t made any loans in three years and the inflow of new delinquencies has slowed, said Kemper’s Vitale.

Instead, thrifts have built up reserves to pay the cost of writing off bad loans, Vitale said. “If that’s the case, the problems are manageable, and the recession doesn’t matter to them.”

Vitale said Coast Savings Financial Inc. and Bay View Capital Corp. have adequate reserves to combat problem assets.

But the jury’s still out on whether H.F. Ahmanson and Great Western Financial Corp., the U.S.’ two largest thrifts, have set aside enough funds to cover future losses.

Ahmanson, the parent of Home Savings Bank of America, has taken steps to improve its loan portfolio.

Hancock’s Chaney said the thrift has adopted a unique approach to shedding its problem assets, offering higher commissions to real estate agents, but it will take 90 to 180 days to judge the program’s success.

Golden West Financial Corp., parent of Oakland-based World Savings Bank, didn’t experience a surge in problem assets.

“Although the state’s soft real estate market put upward pressure on the company’s non-performing assets, past and present emphasis on conservative origination, underwriting and appraisal practices helped limit the damage,” said Marion O. Sandler, president and chief executive.

The future is more complicated for California Federal Bank and Glenfed, parent of Glendale Federal Bank.

California Federal completed its restructuring and exchange offer in December, raising $150 million in capital, satisfying bondholder obligations and avoiding immediate intervention by regulators.

The thrift still needs to raise an additional $25 million in capital to meet the required 5% core capital ratio and 10% risk-based level by June 30. Core capital is net worth divided by average assets.

California Federal, which posted profit on operations for the fourth quarter, plans a 1-for-5 reverse stock split this month and is considering a rights offering.

“Chances are they’ll shrink a little and get a little through earnings,” Vitale said. “Theoretically, they can do it without a rights offering.”

The survival of Glendale Federal depends solely on its goodwill lawsuit with the government, analysts said. The thrift needs to raise $450 million in capital by June 30 to comply with the 5% core and 10% risk-based capital requirements for a “significantly undercapitalized” institution.

On Jan. 19, Glendale Federal filed documents to back its claim for $1.38 billion in damages resulting from broken government contracts. The outcome of the case could determine whether the thrift avoids being seized by regulators.

“We’re willing to settle for 50% of the damages,” Chairman Trafton said. With the settlement, Glendale Federal would emerge as a well-capitalized institution.

If the government did settle, it would establish a precedent for other litigation, Chaney said. “I don’t think the Justice Department is willing to open the Pandora’s box,” he said.

Even with a recovery looming, Merrill Lynch’s Gitt doesn’t like any of the California thrifts.

“I wouldn’t buy any of them, especially with the 30% rally in the last three months,” he said. “You can’t afford to buy by saying, ‘I think it’s bottomed out,’ ” he said.