HomeFed to Set $200 Million Aside for Losses

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 result in a significant loss and render the ailing thrift deficient in one and possibly two of three minimum capital requirements imposed by federal regulators.

The huge loan-loss provision casts further 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 the HomeFed 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 a flare-up of the problem that looks very disturbing--an acceleration, not a reduction, not a stabilization.”

HomeFed, with $18.2 billion in assets, said the loss provisions are necessary because of its growing pile of non-performing 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 bad loan total had increased since February.

The reserves also reflect the results of a recently completed audit of HomeFed books.