Coast Savings Financial Seen on Comeback Trail

LOS ANGELES - Expected second-quarter earnings at Coast Savings Financial Inc. should hoist the ailing thrift into compliance with regulators' capital requirements.

"It is the first big public thrift company to come back in capital compliance," said Joseph Jolson, an analyst at Montgomery Securities, San Francisco. Mr. Jolson expects the Los Angeles-based company to announce earnings of about $1.15 per share for the second quarter, compared with a $1.89 loss in the year-ago period.

Coast's risk-based capital was 7.1% on March 31; the requirement is 7.2%.

The biggest boost to Coast's capital was the sale, closed in May, of 19 San Diego branches to Home Savings of America, the H.F. Ahmanson & Co. subsidiary, for a gain of $20 million. But Coast has also been aggressively shrinking, cutting costs, and attempting to work down problem loans.

Since onerous capital requirements of the 1989 thrift bailout law took effect, Coast has been on the endangered list.

"They could go either way," said one analyst, who did not want to be named.

Coast's chairman and chief executive, Ray Martin, said he would not discuss his company's prospects until the second-quarter financial results were released.

Coast is staggering under a heavy burden of nonperforming assets, which reached $411 million or 4.2% of assets on March 31. In addition, the bailout law mandated that Coast, which has $9.8 billion in assets, dispose of some investments, such as junk bonds, during very poor markets for those assets.

"If the economy stabilizes and gradually improves, we believe Coast will survive and could return to a 0.50% return-on-assets level by late 1993," Mr. Jolson said. But the company will have to struggle to meet the higher capital requirements that lie ahead, he added.

Stock Considered Speculative

Although Mr. Jolson predicts that Coast stock will outperform the market, he cautions that the stock is still too speculative for most institutional investors. Coast shares are selling at $4,375, up 80% since yearend. Forty-five percent is the average rise for the 31 thrifts tracked by Montgomery.

Despite Coast's good performance in the stock market so far this year, a lot of short-sellers are betting the stock will go down.

At the end of June, 1.2 million Coast shares - 8% of its outstanding stock - were in the hands of shorts. Some analysts said the price could be pushed up by shorts scrambling to cover their positions.

One money manager, who asked not to be named, said he is worried about Coast's nonperforming loans and increases that might result from its relatively heavy exposure to commercial real estate.

Mr. Jolson said he expects Coast to earn $2.20 per share in 1991, up from 19 cents last year and a loss of $4.79 per share in 1989. "While Coast will not be thriving, it looks like it could be surviving," he said.

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