HomeFed Plans To Take Hit that Could Be Fatal
Moving a step closer to seizure, HomeFed Corp. indicated Tuesday that it will subtract more than $500 million from its third-quarter earnings because of problem real estate. The San Diego-based company, which operates the nation's seventh-largest thrift, said the move could wipe out its remaining equity capital.
HomeFed also disclosed that it has been slapped with a cease-and-desist order requiring it to have core and risk-based capital ratios of 4% and 8%, respectively, by March 31. The company has little hope of meeting the targets set by the Office of Thrift Supervision, analysts said.
"HomeFed has six months to live," said Campbell Chaney, analyst at Sutro & Co., San Francisco.
The company's shares were trading at $1.50 Monday afternoon, down 12.5 cents.
HomeFed said it was $58 million short of meeting the core capital requirement at June 30 and $210 million short of meeting the risk-based capital requirement. The company retained Kidder, Peabody & Co. in August to help it raise capital, but analysts said the prospect of finding investors willing to sink hundreds of million of dollars into the company is slim.
The thrift company said the size of the charges has not yet been determined. The hit apparently would have to be at least $500 million to $600 million to wipe out equity.
The company had $515.3 million in equity capital at June 30.
HomeFed, with $16 billion in assets, said it would take unusually large loan-loss provisions and other charges because of continued deterioration in real estate markets, particularly in the Middle Atlantic and southeastern regions.
The provisions are in the thrift's commercial and construction portfolios and in its real estate investments. It will also have to take charges and provisions to cover falling values on foreclosed real estate.
The company will also mark to its market value a "significant portion" of the $275 million in holdings of its real estate development company and take a charge on them.
The regulatory cease-and-desist order also requires HomeFed to "retain qualified management" approved by the OTS, elect outside directors, and end some severance agreements it had given executives.
"It is important to note that the company had already identified and begun working on most of the issues addressed in the order," Tom Wageman, HomeFed's chief executive, said in a statement.
Mr. Wageman said he has brought in a group of new managers and one new outside director.
Mr. Wageman, 57, was appointed chief executive with the approval of regulators in July after the ouster of longtime president Robert F. Adelizzi.