Union Federal Critically Short on Cash, Faces Seizure by U.S. : Thrift: The Brea holding company for the 18-branch savings bank said it is trying to recapitalize the institution but also is considering selling it.
Troubled UnionFed Financial Corp., having failed to meet its financial goals for March, revealed Monday that it has become “critically undercapitalized” and subject to being seized within 90 days by federal regulators.
The Brea holding company for Union Federal Savings Bank said in a prepared statement that it will call a special shareholders meeting next month to vote on a variety of measures aimed at reviving the company with a cash infusion of $35 million to $40 million.
UnionFed said it also is considering selling the 18-branch thrift, which is based in Los Angeles.
The company said it received notice June 3 from federal regulators that they consider the thrift to be critically undercapitalized because its capital--its final reserve against losses--fell below 2% of its loans and other assets.
At the end of March, Union Federal’s evaporating capital hit 2.13% of assets but has sunk further since then.
Corporate executives could not be reached Monday for comment. The company’s press release did not state the thrift’s current capital ratio.
Under new federal laws, regulators must take prompt corrective action against financial institutions when capital ratios fall below 2%. Typically, they give institutions a 90-day notice to come up with an adequate plan to fix problems or face a federal takeover. The notice can be extended by regulators two times.
Three weeks ago, before receiving its notice, Union Federal filed with regulators a plan to restore capital. The company said it is still awaiting approval from the Office of Thrift Supervision and the Federal Deposit Insurance Corp.
“We are proceeding as if the plan will be approved and are working with our financial adviser to explore all options for raising capital to achieve regulatory capital compliance in the third quarter of 1993,” David S. Engelman, UnionFed’s chairman, said in the prepared statement. “We are totally committed in our efforts to avert a regulatory takeover by recapitalizing the bank.”
Operating under federal restrictions, the S&L; lost $20.7 million for the first nine months of its current fiscal year. It has lost more than $125 million in nearly four years, and it has shrunk its assets from $2.5 billion at the end of December, 1990, to $1.2 billion at the end of March in an effort to maintain its capital ratio.
Its problems stemmed first from losses on commercial real estate loans and ventures in the Northeast and in Florida. Later, troubled apartment loans and projects in California contributed to the continuing losses.
The thrift also had invested in a subsidiary that developed real estate, an investment now banned by a 1989 federal law. The thrift has suffered large losses as it has been prodded by regulators into selling the unit’s properties. It has until mid-1994 to wind up the unit’s business and recoup as much of its investment as possible.
UnionFed said it filed papers with the Securities and Exchange Commission to call a special shareholders meeting, tentatively set for July 27, to consider several recapitalization plans.
At the meeting, shareholders will consider a 1-for-10 reverse stock split and an increase in the number of authorized common shares from 9 million to 40 million. The company also is considering a proposal to increase the number of shares for issuance under its stock incentive plan. The result of that, the company said, would substantially reduce ownership interests of existing shareholders.
Under the plan, the bank would achieve sufficient capital by Sept. 30. The company said there is no assurance, however, that the plan will be approved by the Office of Thrift Supervision.
Subject to Seizure
Losses of $125 million in nearly four years have eroded the financial condition of UnionFed Financial Corp.
In millions of dollars per fiscal year
Fiscal year Losses Assets 1990 $18.1 $2,482 1991 $64.7 $2,152 1992 $22.1 $1,642 1993* $20.7 $3,920
* For nine months ending March 31
Source: UnionFed Financial Corp.
