FHLBB Moves to Reassure FCA’s Lenders

Federal savings and loan regulators adopted a resolution Wednesday designed to reassure Wall Street securities dealers about their short-term loans to Irvine-based Financial Corp. of America and its operating subsidiary, American Savings & Loan, should the financial institution fail.

The Federal Home Loan Bank Board said the loans--known as reverse repurchase agreements, or reverse repos for short--would be handled without disruption if regulators have to take control of troubled American Savings, the nation’s second-largest thrift. No such takeover action is planned “at this time,” the board emphasized.

Should regulators eventually have to put American Savings into receivership, the bank board also pledged its “best efforts” to maintain an orderly market in the mortgage-backed securities that are used as collateral for the reverse repurchase agreements.

The regulatory move should remove one of the many clouds of uncertainty that have been hovering over FCA, which had its net worth wiped out by heavy losses in 1987. American Savings needs more than $1 billion in capital to restore it to financial health.

Will Sell Portfolio

American Savings has some $12.6 billion in repo loans outstanding. Major lenders have been some of New York’s best-known investment houses, including Merrill Lynch and First Boston. The repo loans provide American Savings with a source of liquidity and earnings.

The S&L; had more than $18 billion in mortgage-backed securities at the end of 1987, but federal thrift regulators recently ordered the financial institution to begin liquidating that portfolio. It is believed that the proceeds from these sales are being used to retire the loans.

American Savings said it “commended” the resolution, adding, “We have had a good long-standing relationship with Wall Street which is being helped by this latest action by the bank board.”

The regulatory resolution effectively replaces the so-called comfort letter that has been issued to FCA by the bank board in each of the past two years. The comfort letter, which expires at the end of this month, is a pledge by regulators not to take action against FCA based on its failure to meet capital requirements.

The bank board will not issue a new comfort letter or renew the old one, according to Karl Hoyle, a spokesman for the regulatory agency. “We feel today’s resolution deals with that question,” Hoyle told the Associated Press.

FCA reported a loss of $468 million in 1987, including $225 million in the final three months of the year.