Home Loan Bank Criticized For High Costs, Poor Profits

WASHINGTON - The latest in a string of lackluster earnings reports by the Federal Home Loan Bank of San Francisco drew unusually blunt criticism from the Home Loan Bank System's chief regulator on Tuesday.

At a public meeting of the Federal Housing Finance Board, Chairman Daniel F. Evans Jr. charged that the San Francisco district bank isn't doing enough to control costs.

Laundry List

Specifically, he said, the district bank is 41% over budget for employee benefits (the bank says 10%) and the 485-member staff is being trimmed too slowly. The bank has been losing 18 cents on the dollar through its 230-employee item-processing unit, which it sold last week.

Mr. Evans made the comments during a presentation on systemwide earnings, which showed that San Francisco's net income dipped to $10.9 million in July, down from $18.5 million in June and $24.4 million in May.

With $38.4 billion in assets, the San Francisco Home Loan Bank is the largest in the 12-bank system, which was established after the Depression to provide liquidity to S&Ls with large mortgage portfolios.

Although all 12 Home Loan banks have experienced earnings declines, the San Francisco district bank has deteriorated more rapidly than the other banks in recent months. In April, San Francisco produced 39% of the bank system's $146 million profit; by July, its share had eroded to 15% of the $73.1 million earned.

Leading Indicator

The erosion in the San Francisco bank's position is a matter of serious concern; with 25% of the system's total $151 million assets, the bank is regarded as a key indicator of the health of the system as a whole.

"Anything that San Francisco does has a huge impact on system performance," Mr. Evans told the American Banker. "When their return on equity drops so far down, it affects the rest, and that is cause for concern."

Dean Schultz, president of the San Francisco bank, called the earnings decline a temporary condition due largely to falling demand for advances, a trend that has affected all 12 Home Loan banks.

PHOTO : Downward Trend

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