backed securities portfolio have forced Roosevelt Financial Group Inc. to take a $17.8 million charge against first-quarter earnings. As a result of the writeoff, the bank is reducing its first-quarter earnings to $5.7 million from $23.5 million. The action represents a conservative effort to recognize the reduced credit support on the loans underlying the securities, said Stanley J. Bradshaw, Roosevelt's president and chief executive. "We've been extremely aggressive in the way we put a discount on this," he said. "This is a disappointing interruption in our earnings history. But we think it's easier to sell people on conservatism than the other way around." He added that the company has not seen any reduction in the income generated from these securities, and he expects they will continue to perform in the future. "Since we're holding these securities at such a low value, we don't think they hold any ongoing credit risk to the company," he said. "The highest, best use decision is just to let the securities perform." Nonetheless, the announcement came as a shock to the investment community. After closing at $18.625 a share last Friday before the announcement, Roosevelt's shares were off $1.25, to $17.375 a share, by the close of Monday's trading. But one analyst who follows the company thinks the negative effects from the writeoff will not last. "Anytime a charge like this is taken, it's going to spook some investors," noted Joe Stieven, an analyst with Stifel, Nicolaus & Co. "There was a little bit of a shock factor. But we believe the company's fundamentals remain very strong." The unrealized losses stem from eight pools of residential mortgages in California that the company bought before December 1993. Seven of these pools contained loans that were originated by Guardian Savings and Loan Association. The loans were originated in the two years immediately before Guardian was placed in conservatorship by the Office of Thrift Supervision in June 1991. In its disclosure, Roosevelt reported that the Guardian pools started experiencing higher-than-anticipated delinquencies and foreclosures, as well as higher losses on disposition of foreclosed assets, beginning in mid-1993. As a result, the company took a charge of $14.4 million. Another $5.1 million was written off for securities covering a pool of single-family and multifamily loans in California. These loans had multiple originators. Declining real estate values in California, combined with the "lack of competent servicing on the part of the RTC and its people" helped create the problems with the securities, Mr. Bradshaw said. But Roosevelt's experience holds lessons for other investors in the mortgage-backed securities market, said Mr. Stieven of Stifel Nicolaus. "I think it shows investors that there is some inherent risk in mortgage-backed securities, even when they are triple-A rated," he said. "There is not only interest rate risk in these securities, but some credit risk as well."
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