HomeFed Braces for Losses, May Face Restrictions

HomeFed Bank said Thursday that it expects to set aside about $200 million in loan loss provisions for its first quarter, a charge that will likely cause a significant loss and render the ailing thrift deficient in one, possibly two of three minimum-capital requirements imposed by federal regulators.

The huge loan loss provision places increased doubt on the troubled San Diego thrift’s chances of survival and raises the specter of yet another failure of a once-formidable California thrift. Sal Serrantino, president of California Research Corp., a Santa Monica based financial research firm, described HomeFed’s situation as a “downward spiral that feeds on itself.”

“I was hoping to see a bottoming out of HomeFed’s problem loans, but $200 million is a monster number, “ Serrantino said. “This is flare-up of the problem that looks very disturbing, an acceleration, not a reduction, not a stabilization.”

The thrift, with $18.2 billion in assets, said the loss provisions are necessary because of HomeFed’s growing pile of nonperforming assets. The precise loss provision will be announced along with HomeFed’s first-quarter results within two weeks. Last year, HomeFed’s $546 million in total loan loss provisions resulted in a fiscal year 1990 loss of $247.5 million.

At the end of February, HomeFed’s bad loans totaled $1.3 billion, or 6.7% of total assets, an alarmingly high figure. That total was up $100 million from $1.2 billion at the end of 1990. A HomeFed spokeswoman declined to say if the total of HomeFed’s bad assets had increased since February.

The reserves also reflect the results of a recently completed audit of HomeFed books by examiners from the Office of Thrift Supervision and the Federal Deposit Insurance Corp. HomeFed executives received preliminary results of the audit this week, a spokeswoman said Thursday.

As a result of the capital shortfall, the 210-branch savings and loan expects federal regulators to slap it with unspecified operating restrictions. Although HomeFed did not say what sorts of restrictions it expects, other S&Ls; in similar condition have been banned from making new loans.

Hammered by mounting bad loans and last year’s loss, HomeFed earlier this year announced plans to reduce assets by $2.5 billion, to suspend dividend payments and to trim 150 more jobs from its 4,000-employee work force. A spokeswoman Thursday said no further job cuts are planned.

HomeFed stock closed unchanged at $4 per share Thursday in New York Stock Exchange trading. News of the large loan loss provision was released after the stock markets had closed for the day.

The loan loss provisions will leave HomeFed deficient in risk-weighted capital and probably in its core capital requirement as well, the spokeswoman said. HomeFed’s capital is still safely above the tangible capital requirement, the most stringent of the three regulatory measures of financial health.