Coast Savings Loses Favor As FDIC Chills Investors
As recently as two weeks ago, Coast Savings Financial Corp. appeared to have gotten one foot out of the California thrift quicksand. Its stock was on the rise as the company's outlook brightened.
But new signs that regulators are taking a tougher attitude toward weak players have suddenly chilled investors. The result: In the past week, the stock of Los Angeles-based Coast has dropped to $5 a share from nearly $8 - the biggest percentage loss among California thrifts. It was above $9 just last month.
Two moves by regulators have worried investors: a program to sell troubled thrifts before they run out of capital, and an unexpected order that CalFed Inc., one the nation's largest thrift companies, build capital significantly.
Setback for Program
The so-called early-resolution program had been announced earlier this year. But it was thrust back in the news recently when word leaked out that the Office of Thrift Supervision and the Federal Deposit Insurance Corp. were having no luck shopping around some of California's weakest big thrifts - those owned by HomeFed Corp., CalFed, and Glenfed Inc.
There was no suggestion that Coast was being shopped. But the $8.9 billion-asset thrift was found guilty by association, despite having a stronger capital position than the other thrifts.
The program raises the specter that regulators might try to sell the thrift if it stumbles further, said Campbell Chaney, an analyst with Sutro & Co. in San Francisco. That prospect spooks shareholders, who would face significant losses.
"It's tough to say whether Coast will be a survivor," said Mr. Chaney. "Six weeks ago, it looked like one. But now with the regulators' early-resolution process - trying to sell the company out from shareholders - I'm not so sure."
That other even that worried investors was an OTS order that CalFed raise an additional $375 million in capital. CalFed's tangible capital ratio of 2.6% already exceeds the 1.5% requirement. Investors were left wondering if Coast, which has a 2.8% ratio, would receive a similar command.
"That flies in the face of what Washington is saying - it is a real regulatory tightening of the capital requirements," said Bruce Harting, an analyst with Salomon Bros. in New York.
Ray Martin, chairman of Coast, accepted the stock drop stoically. "I think anybody that is in this business gets tarred when someone has bad news," he said. "Until the [California economy] settles down, we can't do anything about the stock price. When we come out of the real estate recession in California, the volatility in the stock will disappear."
In another development, Gerald D. Barrone, president and chief operating officer, announced his retirement. He is 60 years old and has been with the company since 1987.
Coast is not the only California thrift whose stock has sputtered. Prices of the state's eight big thrifts have fallen by about 20% since Labor Day, driven down chiefly by a lack of resurgence in housing starts. Even the Golden West Financial, considered the strongest California thrift, dropped by 14% to $37.
Coast's stock tumble brings the price back to its low of the summer, before Montgomery Securities, San Francisco, put out a buy recommendation. Investor interest pushed the stock to $9. However, some analysts believe $5 is more realistic, given the bank's fundamentals.
For the past 24 months, it has been pruning back assets and cutting expenses, while holding nonperforming assets steady.
After posting only a $2 million profit last year, the thrift has turned in three profitable quarters so far this year, including $6.8 million profit in third-quarter earnings. Analysts are forecasting a profitable fourth quarter. However, the profits have been bolstered by one-time gains.
The stock of two big credit card issuers took a pounding today, on news that the U.S. Senate approved a provision that would limit interest rates on credit cards.
MBNA Corp., the Delaware banking company whose income stems heavily from credit cards, was hit hardest. Its stock fell $5.215, to $36.875. If the provision becomes law, the banking's company would post a loss of 48 cents a share next year, instead of a $3.50 profit, according to Keefe, Bruyette & Woods.
PHOTO : A Mighty Fall Price per common share of Coast Savings