Earnings at Big Thrifts Jump But Lag Year-Earlier Results
Earnings of the largest thrift institutions plunged below year-earlier levels in the first quarter but were considerably higher than in the fourth.
In the first 1991 quarter, the thrifts were still socking away big provisions for loan losses, which dampened profits. They also faced recession-induced sluggishness in demand for residential mortgages, and rising nonperforming loans. And some were still taking charges to unwind businesses that were no longer viable since the 1989 thrift reform legislation.
Much of this activity will continue for the rest of the year, analysts said.
"Each thrift is in various stages of balance-sheet repair," said Robert Hottenson, thrift analyst at Goldman Sachs & Co.
Of the 10 largest thrifts, only Golden West Financial Corp., parent of Oakland-based World Savings and Loan, managed a year-over-year increase in first-quarter profits.
New York-based Crossland Savings shaved its loss to $41.9 million, from $136.5 million in the first quarter of 1990.
But all the rest showed declines in first quarter results. First Nationwide Financial Corp., San Francisco, joined Crossland in the loss column, at $20.9 million.
Losses Total $45.5 Million
The top 10, which posted profits totaling $204.2 million in the year-earlier quarter, lost $45.5 million in the first quarter of 1991. But the most recent figure was a big improvement over that of the fourth quarter, when huge losses at Calfed Inc., Los Angeles; Glenfed Inc., Glendale, and HomeFed wiped out the relatively small profits of the other thrifts and produced a loss of $562 million for the group.
Although those big losses are not expected to be repeated at most of the big thrifts, analysts are warily watching the rises in nonperforming loans. As the country continued to slump into recession, virtually every major savings and loan had another increase in bum credits.
Residential mortgages, the bread and butter of the thrift industry, are joining commercial and construction loans as a problem area. But the single-family portfolio should not be as damaging, since commercial real estate and construction loans are traditionally more sensitive to a poor economy and produce higher levels of problem credits and eventual loss.
"There is a really meaningful rise in single-family delinquencies," said Jonathan Grey, an analyst at Sanford Bernstein & Co., New York. The rise in single-family delinquencies "will continue at an accelerated pace until the economy turns," he said.
Rise in Nonperformers
For example, he said, H.F. Ahmanson & Co.'s nonperforming assets, which are primarily residential, grew at rates of about $56 million per month in the fourth quarter, $63 million in January, $84 million in February, and $70 million in March.
Loan delinquencies may continue to rise "even as the economy picks up," said Richard H. Deihl, chairman and chief executive of Ahmanson, the largest thrift company. But "we believe they will begin to level off and return to more normal levels as people get back to work and catch up with their mortgage payments."
Ahmanson expects "actual loan writeoffs will be well within traditional norms, and we believe that whatever losses we may experience have already been adequately reserved," Mr. Deihl said.
Ailing HomeFed reported another serious deterioration in its credit quality. Nonperforming assets hit $1.47 billion, up 24% from the $1.18 billion of the previous quarter and more than triple the $454 million a year earlier. HomeFed's president and chief executive officer, Robert Adelizzi, resigned in May under pressure from regulators.
Higher-than-normal provisions will continue this year but will not match 1990 levels, said Lawrence R. Vitale, vice president at Keefe, Bruyette & Woods Inc.
"The reserves doubled year-over-year. You won't see that again," Mr. Vitale said. CalFed, for example, increased its reserve to $227.9 million, from $130.2 million on March 31, 1990.
Loan Volume Off
The volume of new loans was off at most thrifts in the first quarter. For example, Great Western Financial Corp., Beverly Hills, booked $1.6 billion of new loans in the first three months of 1991, down 35% from the year-ago $2.4 billion.
Many executives and analysts are encouraged by the recent pickup in home sales, but not one of those interviewed was ready to predict a banner year for 1991. First Nationwide, for example, increased its reserve new loans in 1990 and expects "roughly the same as last year," said John M. Devine, chairman and chief executive officer.
Many thrifts have been shrinking to improve their capital ratios. But some are still growing. Ahmanson's assets jumpled to $50.5 billion, up 6% from $47.6 billion a year earlier, making it larger than First Interstate Bancorp of Los Angeles, the state's fourth-largest commercial banking company. [Tabular Data Omitted]