Realty Fears Keep California Banks at Bay
Although the stock prices of U.S. banks have enjoyed a healthy rebound this year, few California institutions have gone along for the ride.
Concerns about the state's real estate markets are well known, but data compiled by SNL Securities document just how big a toll investors' worries have taken.
While the 225 bank stocks in the American Banker index have gained an average of 46% this year, only four of 48 California institutions can match that mark. And 18 banks in the state have declined in price.
Bank Assurances Mean Little
"The investors are very scared about what's going on," said James L. Marks, an analyst at SNL, a research firm based in Charlottesville, Va.
Like their counterparts in Arizona and New England, California bankers have insisted that demographics would protect their state from a Texas-style calamity. But when nonperforming loans started to tick up this year, the reassurances fell on deaf ears.
"Investors are at the point where they realize that management is not always the best judge of what's going on in their real estate portfolios," said Cheryl Swaim, an analyst at Oppenheimer & Co., who sees California banks stabilizing after "a few rough quarters."
Fear of more increases in nonperforming assets, rather than actual losses, is moving prices this year, said Ms. Swaim.
Repeating a Pattern
Mr. Marks said evidence is mounting that investors' fears are justified. Indeed, he said, the increases in nonperforming assets at many banks in the first half were similar to those a year ago at banks in the Middle Atlantic states.
"The pace is very much the same," Mr. Marks added. "A lot of the banks are loaded up on commercial real estate" and could be especially vulnerable.
The biggest percentage loser in share price this year, through last Friday, was First National Corp. Through midyear, the San Diego banking company saw a 129% increase in nonperforming assets plus loans 90 days or more past due. That helped drive its share price down 36.1% through Oct. 4.
The selloff in First National stock was accelerated by a Sept. 27 announcement that the company expected to add $10.8 million to reserves for real estate losses.
First National was followed by Imperial Bancorp, Inglewood, which lost 28.71% in share price, with an 81% rise in nonperforming loans in the first half, and by SDNB Financial Corp., San Diego, with a 28.66% decline in share price and a 386.3% increase in nonperformers.
First National's proportion of high-risk commercial real estate assets at midyear was slightly greater than the 13.92% national median, at 14.33% of total assets. Imperial and SDNB were well above the median, at 29.52% and 24.51%, respectively.
Still, analysts noted that exposure to real estate did not guarantee a stock hit.
The California institution with the greatest exposure to realty risk was Sumitomo Bank of California, San Francisco, whose shares gained more than 30%. The bank, which has 62.24% of its assets in commercial real estate, was able to keep its nonperformers fairly flat.
The Merger Boost
Sunrise Bancorp of Roseville, with 50.78% of its assets in real estate, posted a 191.5% increase in nonperformers, but its share price was unchanged, albeit at a steep discount to book value of 52.8%.
All four banks that bucked the trend by doing better than the national average in share-price appreciation benefited from mergers or merger announcements.
BankAmerica Corp., San Francisco, and Security Pacific Corp., Los Angeles, which announced merger plans in the summer, gained 52.83% and 53.94%, respectively. Foothill Independent Bancorp, Glendora, and Vallicorp Holdings Inc., Fresno, which were involved in mergers, gained 67.44% and 93.75%, respectively.
Bank stocks were mixed in afternoon trading as the Dow Jones industrial average surged nearly 30 points, to 2964.
The biggest gains among big banks were by J.P. Morgan & Co., which rose $1.75 a share, to $61.12, and Mellon Bank Corp., which slipped $1, to $32.875.
Among thrift stocks, Charter One Financial was a big gainer, as investors digested last week's news of its federally assisted acquisition of a Toledo, Ohio, thrift. Its shares rose $1.25, to $24.50. Golden West Financial Corp., apparently seen as vulnerable to falling rates because it is an adjustable-rate lender, slid $1.50, to $38.125. [Tabular Data Ommitted]