Bank of California Reports A Big Loss as Realty Sours
SAN FRANCISCO - In another sign of the slump in California real estate, the Bank of California has disclosed a loss of about $183 million in the second quarter after taking a special loan-loss provision of $200 million, huge for a bank of its size.
The San Francisco-based bank, owned by Mitsubishi Bank Ltd., Tokyo, earned $14.7 million in the second quarter of 1990 and $14.8 million in the first quarter this year.
In the fourth quarter of 1990, it lost about $19 million following a $50 million provision.
The second-quarter provision is among the largest yet made by a Golden State bank to cover real estate losses. The bank has $8.9 billion in assets, making it sixth-largest in the state and the second-largest in Japanese-owned bank in the United States.
While the latest addition to reserves is designed to cover potential losses in several lending areas, "by far our biggest problem is real estate," Bank of California president and chief executive Yasumasa Gomi said.
The bank has offices in Washington, Oregon, and California, but the biggest category of problem loans is for home construction in Southern California, Mr. Gomi said.
Bank of California's provision "is part of a trend," said Campbell K. Chaney, an analyst with Sutro & Co., San Francisco. "Those banks with the most aggressive underwriting standards take the hits first."
Using Own Judgment
Except for a small portion allocated for highly leveraged transaction loans, Bank of California took the latest provision on its own initiative, not because or regulatory pressure, bank officials said. The Office of the Comptroller of the Currency is expected to begin a targeted examination of the bank's real estate portfolio next month.
The provision's main purpose is to wipe the slate clean as Bank of California carries out a broad business restructuring designed for slower-paced growth and a focus on loans to small and midsize West Coast businesses.
"To do this, I am putting aside more than adequate reserves, a lot more than would ordinarily be required," Mr. Gomi said.
While Mr. Gomi declined to provide an exact figure, he said Bank of California's nonperforming assets at the end of the second quarter exceeded $500 million. At the end of the third quarter, nonperforming assets amounted to $371 million, or 4.98% of total loans.
Mr. Gomi confirmed reports that Mitsubishi insisted on Bank of California's strategy change to improve the unit's poor profit record. Bank of California has averaged about a 5% return on equity in the last three years.
Bank of California has moved to align itself more closely with Mitsubishi's other North American operations, Mr. Gomi confirmed. But he said reports that Japanese executives make all key decisions for Bank of California are incorrect. "A major part is played by our American management team," he said.