California Federal Bank on Monday reported a greater than expected $56.8-million loss for the third quarter and said its delinquent loans continued to rise in the period, developments that raised concerns among analysts that the thrift's condition is worsening.
Analysts were clearly expecting better results from CalFed, which, after firing former Chairman Jerry St. Dennis in July, left the impression that the way was clear to concentrate on a strategic refocusing. But Monday's results made it clear that CalFed's loan problems still loom large.
A loss was expected at Los Angeles-based CalFed, the nation's fifth-largest thrift, after it announced in September that it will unload $300 million in bad loans and other problem assets before the end of the year. It said the transaction would force a huge third-quarter write-down of the assets' value, and blamed the write-offs on the decline in Southern California real estate values.
But analysts were dismayed by the amount of the loss reported Monday and by the fact that delinquent loans at CalFed continue to pile up. CalFed stock fell 75 cents a share on Monday to close at $12.25 on the New York Stock Exchange.
"No one was expecting them to make any money and no one expects them to make any money next quarter," said Wedbush Morgan Securities analyst Charlotte Chamberlain. "What was disappointing was the size of the loss and how it further documents the continuing deterioration of income property values in Southern California."
Analyst Joe Jolson of Montgomery Securities said CalFed is "still struggling, basically. . . . They need to get their problem assets down significantly. It's no magical thing. You need to heavily discount them. They haven't written them down enough yet to get rid of them."
Because of the more stringent capital requirements taking effect next year, the loss also raised new doubts about whether CalFed can continue to meet regulatory requirements for capital if it continues to lose money.
Even with the latest loss, CalFed's "core" capital, the most stringent regulatory measurement, stands at $753.4 million, or $136 million above the minimum required. But CalFed will lose much of that cushion over the next year when new accounting rules cause $120 million of its capital to be disallowed, said Gerard Cassidy, analyst at Hancock Institutional Equity Services in Portland, Me.
The latest loss, which contrasts with CalFed's $42.2-million loss over the same quarter last year, was caused by $81.1 million in provisions for loan and foreclosed real estate losses.
The thrift's total non-performing assets--delinquent loans plus foreclosures--declined over the quarter by $23.3 million to $1.161 billion, or 7.4% of its $15.7 billion in assets.
But the delinquent-loan component of non-performing assets continued to mount, an ominous sign. Delinquent loans on Sept. 30 totaled $730 million, up $18 million from the level on June 30. The majority of CalFed's problem loans are in Southern California single-family mortgages and apartment loans.
Bruce Harting, an analyst with Salomon Bros. in New York, said other thrifts such as Home Savings of America and Coast Savings are reducing new delinquent loans.
In September, CalFed thrift hired Smith Barney Shearson as its financial adviser on "how best to maximize shareholder value." Those alternatives include an outright sale of the 183-branch thrift. The thrift also hired a new chief executive, Edward Harshfield, who has experience in managing failed institutions for regulators.