Valley Federal Loss Pinned to Subsidiary

Valley Federal Savings & Loan reported a third-quarter loss of $70.6 million Wednesday because of pretax charges stemming largely from a troubled subsidiary that makes loans for mobile homes.

The charges, although seen as a necessary step, shrunk Valley Federal’s net worth considerably and may force the Van Nuys-based thrift to sell assets to raise its capital levels.

Valley Federal attributed most of the charges, totaling $89.9 million, to a $62.2-million writeoff at the mobile home subsidiary. Valley Federal also increased its loan-loss reserves by $18 million and eliminated $9.9 million in intangible assets from its books.

The third-quarter loss contrasted with net income of $132,000 during the 1988 period. Total assets for the thrift fell 8% as of Sept. 30 to $3.2 billion from $3.4 billion a year earlier.

The thrift said the writeoffs would end a string of losses that it blamed on the mobile home subsidiary, All Valley Acceptance Co., which suffered higher-than-expected rates of repossessions and delinquent loan payments.

For the nine months ended Sept. 30, Valley Federal lost $73 million.

Valley Federal President and Chief Executive Dan E. Nelms predicted that the S&L;’s 1990 profit would approach its record profit level in 1986, when the thrift had net income of $17 million.

Valley Federal stock rose $1 a share to close at $4.25 in over-the-counter trading Wednesday.

But the writeoffs substantially lowered Valley Federal’s net worth, to $34 million as of Sept. 30 from about $107 million a year earlier.

And after the move, Valley Federal had only about 80 cents in “tangible capital�--essentially cash--for every $100 in total assets, compared to $2.45 a year ago. That could be a problem, because the federal S&L; bailout law calls for thrifts to maintain a ratio of $1.50 in tangible assets for every $100 in total assets, beginning in 1991. The requirement is designed to give thrifts more of a cushion against losses.

Nelms said the thrift would move to meet that requirement by shrinking its assets and by bolstering cash with profits and possibly with the proceeds of a new offering of stock or bonds.

Nelms predicted that Valley Federal’s near-record profits in 1990 would position the thrift to sell bonds or stock, or to be acquired by another thrift.

The continuing problems at AVAC were “the major factor� behind the decision in late September of Glendale-based Citadel Holding Corp. not to acquire Valley Federal, said Dan Williams, an analyst with Sutro & Co. in San Francisco.

Valley Federal also reported that it was undergoing audits by the federal Office of Thrift Supervision and the Federal Deposit Insurance Corp. Nelms described the audits as “ordinary.�