NEWPORT BEACH — FarWest Savings & Loan Assn. must raise more than $300 million to pull itself out of insolvency and comply with thrift capital regulations, a task so onerous that S&L analysts expect a federal takeover by the end of the year.
The Newport Beach S&L, a unit of FarWest Financial Corp., is trying to stay the hand of regulators by coming up with a plan soon to raise more capital. But thrift regulators have rejected previous plans.
FarWest Financial reported for the first time in a recent quarterly filing with the Securities and Exchange Commission that the thrift had a negative net worth--debts exceeding assets--of $35.4 million.
In addition, the company said FarWest Savings had a capital deficit of at least $112 million. The S&L needs a cash injection of $307.4 million in order for it to meet regulatory capital requirements. Capital is a thrift's final cushion against losses.
The thrift has been sunk by writedowns in its junk bond portfolio and in huge amounts of reserves it has set aside for possible bad loans and real estate investments. It reported a loss of $119.7 million in the first three quarters this year.
"It's gone," said Bert Ely, an Alexandria, Va., industry consultant.
Ely discounted industry talk that the wealthy Belzberg brothers of Canada, who have controlled FarWest for 16 years, would rescue the institution. He said such speculation is naive.
"The reason wealthy people are wealthy is because they know when to cut losses," Ely said. "Deep pockets make rational judgments."
Other wealthy owners of failing thrifts, such as Frank J. Mola at Charter Savings Bank in Newport Beach, have simply let the regulators seize their institutions rather than pour more money into the thrifts and continue facing regulatory demands.
The Belzbergs have refused in recent months to comment about their plans for the thrift. William Belzberg, chairman of FarWest Financial, did not return telephone calls Friday.
Should regulators seize FarWest Savings, they would turn it over to the Resolution Trust Corp., a government agency that would appoint a managing agent to continue operating the institution. Deposits under $100,000 would remain insured.
Analysts already are speculating on how much a government-seized FarWest would fetch in a sale by regulators.
With 28 offices in Southern California and assets of $3.5 billion, FarWest Savings has an "excellent branch system that has great value" and could command a sale price of $30 million to $60 million based on its current size, said Edward J. Carpenter, a Santa Ana industry consultant who has advised the Belzbergs previously. The branch system "might be attractive to banks that have a lot of capital," he said.
FarWest Savings hopes to file a new capital plan with regulators this month, said Charles H. Green, the thrift's president and chief executive. In general, the capital plan will call for an infusion of capital, a "substantial" reduction in assets, "significant" cuts in expenses and originating more secured loans for construction of single- and multiple-family housing, the SEC document states.
Though he talks with regulators almost daily, Green said they have given no assurance "whatsoever" that the thrift won't be seized.
In releasing information last week on its third quarter loss of $89.9 million, FarWest Savings said it was insolvent but didn't provide any figures. The SEC document revealed the depth of its deficit and other problems:
* In October alone, the thrift put $8.3 million aside for possible losses on loans and real estate holdings. The document said it was recognizing "a weakening in its principal real estate market of California." Green acknowledged that the amount was unusually high.
* The company found a possible tax liability under a technical interpretation that could be made in a tax code provision, and it notified the Internal Revenue Service. The potential tax it may have to pay could be at least $18.5 million.
* Thrift regulators required the S&L to put $13 million in loss reserves to cover a $23-million jury award that a Denver borrower had won last February. FarWest Savings has appealed the jury verdict.
* Because it is insolvent, it must sell more than half of its $1.1-billion loan servicing operation, a profitable business that bills and collects mortgage payments for loans it has made and sold to investors.
Federal regulators asked FarWest Savings in early November to file a new plan to rid the institution of its equity stocks and junk bond and real estate holdings, assets that are deemed highly risky and banned by federal law.