Glenfed dives into red with reserve hike.

Glenfed dives into red with reserve hike

Giant thrift holding company Glenfed Inc. last week announced it would increase its reserves sharply in an effort to bolster its cushion against a continued high rate of loan losses, a move expected by some analysts.

The company said it would increase reserves by some $225 million and charge off $30 million in other assets in the fiscal fourth quarter ending June 30.

That will lead to an expected net loss of some $140 million in the quarter, resulting in a red-ink bath of about $235 million for the fiscal year.

Some analysts said they were unsurprised by the move because Glendale-based Glenfed had a lower ratio of reserves (a cushion of capital against losses) to problem assets than other large savings and loans.

"Where they have been most derelict has been in loss reserves as a percentage of problem loans," said Sheldon Grodsky, an analyst at stock brokerage Kenneth, Jerome & Co. of Florham Park, N.J. "This has been hanging over their stock for a long time. Whether this is adequate to cover losses, only time will tell, but it certainly looks better than a year ago."

One analyst actually changed his rating from "hold" to "attractive" after the announcement. "They took a more conservative stance than I thought," said Gary Gordon of New York-based stock brokerage PaineWebber. "I think they took step beyond what regulators required. It's a very risky stock but there's a very substantial upside."

The move came shortly after government regulators signaled increased caution about some large West Coast institutions. Analysts said Glenfed and Los Angeles-based CalFed Inc. were among the institutions whose classifications were downgraded.

While refusing to identify the institutions, spokesman Paul Lockwood of the Office of Thrift Supervision, said a number of large institutions had been moved from the second to the third of four categories used to define thrifts.

He defined group two institutions as ones that are expected to meet all phased-in capital requirements, while group three institutions "have problems, but we think they can recover."

Many analysts expect Glenfed and CalFed to surmount their problems and survive industrywide consolidation by reducing total assets. Asset-cutting helps to reduce costs and the amount of capital the institutions must hold against costs and losses.

Glenfed also announced Chief Financial Officer Steve Trafton was promoted to vice chairman and a director. He has been largely in charge of Glenfed's ambitious restructuring program to cut annual costs by $160 million by fiscal 1992. Trafton's promotion fills the void left by the resignation of former Glenfed president Keith Russell Jr., who left the company June 3, said analyst Campbell Chaney of San Francisco-based stock brokerage Sutro & Co.

Glenfed said of the $225 million reserve increase - which compared to a $21.9 million hike in the third quarter - $135 million will be allocated to commercial finance subsidiaries and its investment lending portfolio. Some $90 million will be set aside against anticipated losses on selling foreclosed real estate and real estate development subsidiary assets.

The company, skirting just above the mandatory capital requirement in one key ratio, said it is expected to continue to be in complaince with the ratio at June 30.