Trouble for Two Major California Thrifts
Capital Boost Ordered At Struggling CalFed
LOS ANGELES -- Regulators are hitting California Federal Bank with higher capital requirements, the thrift said on Wednesday.
CalFed said the Office of Thrift Supervision wants it to add $375 million to its equity by June 30. The higher requirement could put CalFed out of capital compliance, making the Los Angeles-based thrift vulnerable to seizure by regulators.
Markets Aren't Interested
The capital markets are closed to shaky thrifts like CalFed, which has $19.1 billion in assets. And it would be nearly impossible for CalFed to raise that large a sum with asset sales. Retained earnings are out of the question, since CalFed is expected to lose money again this year.
The company lost $256.9 million in 1990 and another $55.5 million in the first nine months of 1991.
"In this kind of environment, given the condition of the institution, the chances of raising [$375 million] in capital are low," said Donald Crowley, head of research at Keefe, Bruyette & Woods Inc.
Adding $375 million to its equity at Sept. 30 would give CalFed risked-based capital of 10.17%, core capital of 6.23%, and tangible capital of 4.67%. Requirements for most thrifts are 7.2%, 3%, and 1.5%, respectively. The bank currently exceeds those standards.
Requirement Called Excessive
"We strongly disagree with this proposal and believe that the capital requirement is excessive," said Jerry St. Dennis, chairman and chief executive of CalFed Inc., the thrift's parent company. The company will file a response to the proposal within 30 days.
Joseph Jolson, a thrift analyst at Montgomery Securities, said CalFed's parent has $125 million in bonds outstanding that have a put option. CalFed will be obligated to buy this debt by February 1993.
Mr. Jolson said regulators do not want the bondholders to be paid, and the higher equity requirements are designed to force the company to downstream more capital to the thrift.
However, he warned, "the bondholders could force CalFed into an involuntary bankruptcy."
CalFed's nonperforming assets continue to rise and totaled 5.15% of total assets at Sept. 30. CalFed also has a large real estate development company that it is trying to sell.
"CalFed's management has worked hard to get expenses down and deal with problems," said Mr. Crowley, "but the regulators and the economy have created a gridlock in the ability to get real estate out the door."
In midafternoon trading, CalFed's stock was off 37.5 cents to $2.625.