California Banking Issues Climb As Investors Sense a Turning Point

LOS ANGELES -- Wells Fargo & Co.'s bad news, though worse than expected, gave the major California bank stocks a lift as investors saw the beginning of the end of the state's real estate-related woes.

Though few analysts or bankers are ready to say that the state's real estate market has hit bottom, or that the big loan-loss provisions are over, they viewed the Wells announcement as a turning point.

"The shoe has dropped, and there is at least initial relief," said Jay Ehlen, a bank analyst with UBS Securities Inc., New York.

"California banks' dues have largely been paid," said Donald Crowley of Keefe, Bruyette & Woods Inc. in San Francisco. "To the extent that these banks have commercial real estate, they will continue to pay, but on a smaller scale."

The stock prices at Wells' California competitors rose on Thursday. BankAmerica Corp., San Francisco, climbed $2.50, to $33.50, and First Interstate bancorp rose $2, to $27.75. Security Pacific Corp., which is merging with BankAmerica, gained $2, to $27.25.

But all remain well below their 52-week highs. For example, BankAmerica is down $11, and Wells Fargo, which closed at $60.50, is $37.25 below its high.

Coverage Is Improved

Mr. Crowley pointed out that Wells raised its reserve coverage of nonperforming loans to levels already achieved through provisions taken in earlier quarters at the other big California banks.

First Interstate, for example, has a well-padded cushion of 99% against its nonperforming loans.

"I certainly wasn't surprised by Wells' announcement," said J. F. Schulte, vice chairman and chief financial officer of City National Corp., Beverly Hills. "This is the toughest period for California I've been through in 27 years at City National."

City National, which has long been one of the most consistent and highly profitable banks in the country, saw its earnings drop to $2.5 million in the first nine months of 1991, from $42.5 million a year earlier, mostly because of big provisions for real estate loan losses.

California real estate "will be slow coming out" of its doldrums, said Mr. Schulte, who like other bankers is reluctant to declare that the worst is over. "These announcements of lay-offs don't help things at all. People have got to have money in their pockets."

No Abrupt Turnaround

"The California economy is weak and it isn't going to turn around on a dime," said Ian Campbell, a senior vice president at Great Western Financial Corp. in Beverly Hills, the nation's second-largest thrift company.

Loan delinquencies on single-family homes in California have "continued to tick up," Mr. Campbell said. "There are no signs that that is immediately turning around. It is typical for a recession."

At Sept. 30, 6.3% of all California banks' real estate loans and other real estate owned was classified as troubled, according to a Federal Deposit Insurance Corp. report this week.

The deterioration in California since June 30 was worse than in all other states except Nevada.

Mr. Crowley at Keefe Bruyette said bank examiners were looking over the books at First Interstate, BankAmerica, and Security Pacific.

"Nothing significant seems to be coming out of" the First Interstate exam, Mr. Crowley said. Security Pacific took a huge $1.2 billion provision in the third quarter and analysts have been less worried about bad news from BankAmerica.

A Strong Bounce

Price per common share 4 p.m. Change Thursday from Wed.BankAmerica $33.50 8.06%


Pacific 27.25 7.92

FirstInterstate 27.75 7.77Wells Fargo 60.50 5.68

Source: Reuters

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