Glenfed subsidiary sale nears completion.

Glenfed subsidiary sale nears completion

Glenfed Inc. reported that the sale of its North American Title Co. subsidiary to a managment-led buyout group will be completed next week.

North American Title, the seventh-largest title insurance company in Los Angeles County, is just one of several real estate subsidiaries that Glenfed is unloading since passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) has made holding onto such operations prohibitively expensive.

FIRREA requires financial institutions, such as Glenfed, to dramatically increase the amount of capital they hold in reserve to insure against possible losses from high-risk investments, such as commercial real estate.

These higher capital reserve requirements have made direct investment in real estate too capital-intensive for many of the nation's banks and thrifts.

North American Title Co. has been steadily losing market share in Southern California for years; although, the company has been holding its own in Northern California.

The title company has been a break-even venture for Glenfed, unlike Glenfed's other real estate subsidiaries which, as a group, have been losing between $1.5 million and $2 million a quarter.

North American Title insured 7,509 property deeds in Los Angeles County last year, capturing a 5.22 percent market share. That performance was off significantly from 1989, when North American insured 10,979 deeds in L.A. County, representing a 5.68 percent market share.

That loss of market share has been accompanied by North American Title shuttering five of its eight Los Angeles County offices. Its only remaining offices here are in Beverly Hills, Glendale and Long Beach.

But North American Title's new ownership group is hoping to reverse the company's deteriorating Southern California performance and the new owners have hired long-time title manager Gary Beeny to pull it off.

Beeny, who until last month was Gateway Title Co.'s Southern California regional manager, was unavailable for comment last week.

But Dan R. Wentzel, North American's chairman and chief executive, said, "Gary is well known as a top-flight title manager who otherwise wouldn't have been available to us. But we offered him a chance to own an equity position in the company, and having a stake in a company this size was attractive to him."

Martin Evans, Gateway's chairman and chief exec, concurred that it was the chance to own an equity stake that lured Beeny away from Gateway, rather than any hard feelings.

"We were sorry to see Gary go," Evans admitted. "But it (becoming an owner of North American) is an excellent opportunity for him."

The sale of North American Title is the second real estate subsidiary to be sold by Glenfed in recent months. Late last year, Glenfed sold its small brokerage firm in central California, Guarantee Real Estate Brokerage.

Glenfed, which is the parent company of Glendale Federal Bank, has not been as successful in its attempts to sell its three remaining, and much larger, real estate subsidiaries.

Back in February 1990, Glenfed hired the New York investment banking firm of Salomon Brothers, and began actively seeking a buyer for its three subsidiaries - Glenfed Development Corp., Glenfed Capital Corp. and Glenfed Financial Corp. Not a single acceptable offer surfaced, so Glenfed decided last December to liquidate its real estate operations instead.

No new loans have been issued by the two commercial lending subsidiaries (Glenfed Capital and Glenfed Financial) and those subsidiaries' outstanding loans are being held to maturity.

Glenfed Development Corp., which built about 300 homes a year plus a few office buildings, is selling off its real estate portfolio piecemeal. About $50 million of that portfolio's assets has been sold since last December, reported Chuck Johnson, president of Glenfed Development, and about $500 million in assets remain to be liquidated.

Johnson estimated that the liquidation of his company's assets would be complete by June 1992, at which time Johnson will be out of a job.

Unloading Glenfed's real estate might be more difficult than Johnson expects, said Campbell Chaney, a thrift analyst with Sutro & Co. The fact that a single buyer did not come forward during the several months that Glenfed's entire portfolio was in the block indicates some of its properties may be undesirable, he noted.

Wall Street, on the whole, has reacted favorably to Glenfed's real estate liquidation plan, which was announced at the end of its second fiscal quarter (Dec. 31, 1990). In mid-January, however, Glenfed announced dismal second-quarter financial results.

Specifically, Glenfed reported a net loss of $140.8 million, or $4.12 a share, for the quarter ended Dec. 31, compared with net earnings of $39.9 million, or $1.30 a share, for the year-ago period.

Glenfed's stock plummeted to a 52-week low on that news. But Glenfed's stock price has since rebounded from its $3.50-a-share low to about $7.50 a share.

"Glenfed's strategic plan looks good on paper, their assumptions about a recessionary environment for the rest of the year look reasonable," explained banking analyst Chaney. "But they still have to set it in motion, and achieve the goals they've set out."

Most investment houses have issued a "hold" recommendation for Glenfed's stock. In other words, they believe the stock's current price accurately reflects the stock's underlying value and that the stock will most likely "move with the market." If the market goes up, say 10 percent, so will Glenfed's stock price, on average.

Chaney said Glenfed is in reasonably good health and that it is not likely to be seized by federal regulators any time soon.

"I don't see any danger of Glenfed failing in the next six to 12 months unless things really blow up in California," he said. But "the Bank of New England only took two years to go from being everybody's darling to being everybody's write-off," Chaney noted.