U.S. Regulators to Sell Ailing HomeFed Bank

SAN DIEGO —  Federal regulators said Friday they will sell HomeFed Bank, the once-proud San Diego thrift that has fallen on hard times, because the savings and loan was unable to stanch mounting financial losses or find a buyer on its own.

Though technically not a government seizure, the announcement amounts to HomeFed’s death knell as a locally owned and managed institution. Regulators say that nine bidders have come forward, including Great Western Bank and Home Savings. Other interested parties include unnamed investor groups.

The sale is likely to take about six months. In the meantime, depositors’ accounts will not be affected and HomeFed’s top management and board of directors will remain. But HomeFed’s stockholders and bondholders will probably lose their investments when a sale is completed, regulators said.

“We gave HomeFed a time period to raise capital on their own,” said Mark Hurley, an official with the federal Office of Thrift Supervision in Washington. But he said the S & L got no offers that did not call for government support, adding that the agency may sell HomeFed as a whole or in pieces.

The Office of Thrift Supervision said it is placing HomeFed--once the nation’s seventh-largest S & L--into the agency’s Accelerated Recovery Program, in which regulators allow a failing institution’s management to continue to operate while buyers are sought.

In the past, regulators usually placed weak thrifts into conservatorship or receivership while they searched for bidders. But the new program was created because the value of those thrifts often deteriorated alarmingly while under direct government control.

With two other thrifts, Great American Bank and Imperial Savings, HomeFed once was part of a trio of powerful San Diego-based financial institutions that were S & L industry leaders. Great American and Imperial are in receivership and have ceased operations in the state.

On Tuesday, HomeFed missed a deadline imposed by regulators to raise $500 million or more in outside capital, or face the prospect of seizure. The thrift has been wracked by losses over the past two years stemming from bad commercial real estate loans in California and elsewhere in the 1980s.

Industry sources gave HomeFed little hope of finding sufficient investment on its own because of the abundance of failing thrifts vying for capital. Also, prospective buyers were waiting for the government to intervene with its guarantee to shield the new owner from future loan problems.

Regulators declined to say how much bidders might pay for HomeFed’s good assets and deposits, but Hurley said he expects bidding to be intense. Perhaps the most attractive feature of HomeFed is its 62-office San Diego County branch network and 20% market share of deposits there.

Beginning next week, a group of up to 200 government examiners will begin combing through HomeFed’s $13.9 billion in assets to establish values, a process that could take three months. Then, potential buyers will begin their examinations of HomeFed’s books.

In the meantime, it is expected to be business as usual at HomeFed’s 201 branches throughout the state. “HomeFed remains open, and not under government seizure,” said Thomas J. Wageman, HomeFed’s chief executive officer.

The Accelerated Recovery Program is for thrifts that regulators believe are “acceptably” managed and have maintained a stable deposit franchise, Hurley said. An outright seizure, he said, increases the risk of deposit runoff and exodus of managers. HomeFed’s deposits total about $10.2 billion.

HomeFed Bank, formerly known as Home Federal Savings & Loan, was one of California’s most respected financial institutions. But HomeFed’s bad news has been virtually unrelenting recently. Earlier this week, it reported losses of more than $807 million for 1991, including $35.6 million in the fourth quarter. HomeFed lost $248 million in 1990.

With $13.9 billion in assets, HomeFed is by far the largest thrift to be sold under the accelerated federal program. There have been 40 thrifts nationwide to be placed in this program, including four in California. The others in the accelerated program in California include Valley Federal Savings in Los Angeles and Heartland Savings in suburban San Diego.

All told, 700 S&Ls; have been seized since August, 1989, when the federal bailout began. So far, the cost of the government cleanup stands at $88 billion, but it is expected to grow significantly.

Wageman, who was installed with regulatory blessing last July, got high marks from the Office of Thrift Supervision on Friday for his nine-month stewardship. During that time he has pared the thrift’s assets by more than 25%.

Kraul reported from San Diego and Furlong from Los Angeles.