BankAmerica Corp. and City National Corp. have put up for sale some $500 million in non-performing commercial real estate assets.
The actions reflect the newfound willingness of California banks to sell distressed loans and property at big discounts.
BankAmerica is seeking bids for a portfolio with a face value of $ 342 million, said a bank spokesman, who declined to comment further.
Commercial real estate sources said San Francisco-based BankAmerica is offering about 80 loans and properties for sale. More than half of the assets were secured by property in California. BankAmerica has already completed one bulk sale of $1.6 billion in realty assets this year.
Face Value of $ 157 Million
City National's portfolio of 40 loans and properties has a face value of $157 million, said Jeff Puchalski, executive vice president. Most of the assets are secured by property in Los Angeles county.
City National, which is based in Beverly Hills, is taking the unusual step of offering financing to buyers.
BankAmerica and City National have already taken sizable reserves against distressed real estate assets, so the sales are not expected to result in further losses.
"I would say that BankAmerica is through the problem-recognition phase," said Tanya Azarchs, an analyst with Standard & Poor's. "The balance sheet and earnings pain is mostly through."
BankAmerica's realty sale in June fetched about $700 million, or about 43% of the original loan value. An investor group led by Morgan Stanley purchased the loans.
Real Estate Chargeoffs
The bank still faces sizable real estate chargeoffs. At June 30, it had $996 million of assets held for sale, of which $400 million were related to real estate. The bank also had $1.7 billion of non-performing and restructured real estate loans and $1.7 billion of foreclosed property.
City National, which has $2.9 billion in assets, has written down the assets it plans to sell to less than 50% of face value, said Mr. Puchalski. He declined to speculate on the prices the assets may fetch or how a sale might affect earnings.
City National is also attempting to use the sale to drum up loan business. In what is believed to be a first for a private seller of distressed commercial property assets, City National is offering to lend a buyer up to 75% of the purchase price.
For example, if the properties sell for 50% of face value, or $78.5 million, the bank would be willing to provide a $59 million loan.
"Loan demand throughout southern California is down right now," said Mr. Puchalski. "We think the financing will improve the price we get right now, and improve the marketability."
Five-year Loan
The loan would mature in five years, but payments would be based on a 20-year amortization schedule. The interest rate would be 150 basis points over the prime rate, with a 1% loan origination fee.
"The bank now is really well capitalized and is in a position where it can make a loan," said a market source.
City National lost $59 million in 1992 and $23 million in 1991 due to soured real estate and commercial loans. The bank raised $81 million in a rights offering in June.
At June 30, its Tier 1 capital ratio was 14.61% and leverage capital ratio was 10.35%, both well above regulatory minimums for well capitalized banks.
Strong Appetite
Despite California's severe recession, investors have shown a strong appetite for nonperforming real estate loans since the middle of this year.
In addition to BankAmerica, other California banks and thrifts have sold pools of nonperforming realty assets this year totalling $ 6 billion, including First Interstate Bancorp, Union Bank, Great Western Financial Corp. and H.F. Ahmanson & Co.
Meanwhile, California Federal Bank plans to auction $300 million of delinquent residential and commercial mortgage in early December, said a spokesman.
