SAN FRANCISCO -- Taking a big step toward cleaning up its portfolio of bad loans, California Federal Bank said it has agreed to sell $350 million of problem assets to Argo Partnerships, a New York-based real estate investment fund.

The Los Angeles-based thrift did not disclose terms, but a spokesman said the price is "on the higher side of expectations," another sign of a stable-to-improving market for distressed Southern California real estate.

Analysts estimated that California Federal would get roughly 70 cents for every dollar of the original loan amounts, totaling about $245 million, when the sale closes in June. The thirft got about a dozen bids for the package.

Second Part of Program

The latest sale, consisting of both performing an dnonperforming loans for aprtments and commercial developments, is the second installment in California Federal's three-part program of selling or securitizing about $1.1 billion of troubled assets.

In April, the thrift sold $231 million of residential mortgages to an undisclosed buyer.

As a result of the program, California Federal said, it expects to reduce nonperforming assets to about 2% of total assets by June 30, from 5.26% at Dec. 31.

Becoming Overcapitalized?

Given that the thrift projected in internal documents that it would realize 62 cents on the dollar for the entire asset disposition program, a discount of only 30% on the more-difficult-to-sell income property portion of the package suggests it is getting prices well in excess of its original estimates.

That may support the views of some analysts who maintain that California FEderal is raising too much capital through securities offerings and asset sales, excessively diluting shareholders.

California Federal took a $280 million charge in the first quarter in connection with its asset disposition program.

The thrift's spokesman said it is too early to say whether prices obtained in the two sales to date will allow some of that amount to be recovered.

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