Columbia Savings & Loan in Beverly Hills, one of the most aggressively run and profitable financial institutions in the nation, stands to lose $25 million in the fourth quarter as a result of the stock market's recent "severe decline," the company announced Wednesday.
The news is a jarring setback for the unorthodox, family-controlled company that bills itself as a rock-solid financial institution. Its television advertisements, quoting from a Forbes magazine rating of earlier this year, tout the firm as the best managed major S&L in the nation.
Columbia Savings is the latest of the nation's large financial services companies to report adverse effects from the stock market's plunge of the past two weeks. Continental Illinois Corp. in Chicago and the L. F. Rothschild securities firm in New York both said this week that the market plunge has caused them heavy losses.
Columbia Savings' announcement may add fuel to a continuing debate about the propriety of allowing S&Ls to make non-mortgage investments. Banking regulations allow state-chartered S&Ls to invest up to 5% of their assets in equity securities. Federally chartered S&Ls don't have the same investment powers.
Others May Be Hurting
"I don't think savings institutions should buy common stocks," said Allan Bortel, a financial analyst for the Shearson Lehman Bros. investment firm in New York.
Banking regulators in California say only a handful of S&Ls invest in the stock market, so the statewide industry effect from the market slide isn't expected to be large. But other industry officials and experts say savings banks in New York and New England may be hurting because they traditionally invest in equity securities. "I imagine there might be some noticeable losses" at these financial institutions, said Peter Treadway, analyst for Smith Barney, Harris Upham & Co. in New York.
It's unclear if the stock market volatility has forced Columbia Savings to change its investment strategy. Columbia Savings Chief Executive Thomas Spiegel was not available for an interview, and other company officials declined to discuss the matter publicly.
Columbia Savings' assets include about $7.7 billion in high-yield or "junk" bonds, mortgage-backed securities and equity securities.
Though the firm doesn't specify what stocks it buys, it confirmed that it has nearly $200 million invested in corporate equity securities. Only a relatively minor portion of its $12.9 billion in assets are in home mortgages, the traditional staple of the S&L industry.
Columbia Savings officials tried to minimize the significance of their announcement by saying the potential loss of $25 million would have no effect on the overall health of the financial institution. The firm said it has more than $800 million in regulatory capital and still expects to earn between $125 million and $130 million in 1987.
Company officials also said the loss may not even occur. The $25-million loss assumes there is "no appreciation in the value of our stock portfolio between now and the end of the year," Spiegel said in a statement.
"We hope the stock market and bond market go up," Lee N. Eckel, the firm's general counsel, said in a phone interview. "If they do, we can eliminate this whole thing."
Regulators confirmed that Columbia Savings is not in financial trouble. "They can stand the losses," noted William Crawford, commissioner for the California Department of Savings and Loan.
But neither was Crawford overly sympathetic to any financial institution that loses money in the stock market. "I'm a traditionalist myself," the commissioner said. ". . . I'm not a champion of these kinds of investments."
Crawford noted, however, that the status quo isn't likely to change. "I'd be willing to listen to someone who wants to change things, but (industry) people love these kinds of expanded powers," he said.
In his statement, Spiegel said a recent downturn in interest rates has improved the value of Columbia's multibillion-dollar portfolio of debt securities. As interest rates go down, bond values go up.
"We are also encouraged by an increase in the inflow of savings deposits," Spiegel added. "Small investors have apparently chosen to move out of the stock market and into what they perceive as safer and more stable investments."
Columbia Savings' announcement was accompanied by its latest earnings results, which show that the firm earned $31.2 million in the third quarter, off 19% from last year. Nine-month earnings were $154 million, off 8% from year-ago levels.
Columbia Savings is majority owned by the Spiegel family, which includes Abraham Spiegel, the firm's 80-year-old board chairman. The company's latest proxy statement shows that Spiegel family members own about two-thirds of the common stock.
Under Thomas Spiegel's leadership in recent years, Columbia Savings has been the envy of the S&L industry, racking up huge profit quarter after quarter. But the firm has also been controversial.