Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, February 2, 1991 TAG: 9102020348
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
SOURCE: MAG POFF BUSINESS WRITER
DATELINE: LENGTH: Long
The Resolution Trust Corp. changed the thrift's name to CorEast Federal Savings Bank and assured customers that deposits are insured and loans remain in place.
Andrea Plater, spokeswoman for the RTC, said all branches will reopen Monday, maintaining normal hours. Offices that normally are open Saturday should reopen this morning.
CorEast has its legal headquarters in Roanoke, although its executive offices and operations center are in Richmond. It has 10 branches in the Roanoke area.
CorEast was the second Virginia savings bank assumed by the RTC in a week. Last Friday, the agency took control of Trustbank Savings Bank in Northern Virginia, which has two branches in the Roanoke Valley.
The Office of Thrift Supervision said it placed CorEast in receivership because it was "operating in an unsafe and unsound condition, in that it had insufficient capital with no prospect of replenishment without federal assistance."
OTS said that "new management has brought stability to CorEast, but recovery is highly unlikely." CorEast is insolvent and has negative ratios for financial strength, the agency said.
As of Sept. 30, CorEast had assets of $1.21 billion, liabilities of $1.22 billion and tangible capital of negative $29.88 million. Its ratio of capital to assets, the most usual measure of financial strength, was negative 2.5 percent.
"CorEast's condition is due primarily to a high cost of funds and an over-concentration in high-risk cooperative apartment conversion lending in the New York metropolitan area," the statement said.
The New York market for condominium and cooperative apartments has deteriorated rapidly during the past two years, according to the OTS. It said nearly 90 percent of CorEast's $200 million New York loan portfolio was "troubled or non-performing," meaning it generated no income for the lender.
Regulators in September 1989 ordered the thrift to halt lending money to buyers of apartments being coverted to cooperatives, the OTS said. But "the erosion of assets could not be reversed, forcing the institution to steadily increase its loss reserves."
Overall, CorEast had troubled assets of $197 million, or 16.6 percent of total assets, including $150.3 million in assets classified as substandard, doubtful or lost.
CorEast reported a net loss of $50 million for its last full fiscal year, ended March 31, 1990, and operating losses of $9.3 million for the six months ended last Sept. 30.
CorEast also was hurt by high interest rates it paid on deposits, according to the thrift regulators. "As of Sept. 30, jumbo certificates of deposit - those exceeding $80,000 - constituted approximately 30 percent of total deposits."
Jumbo certificates are those deposits usually placed by brokers. They are considered unreliable for a bank because they are often moved quickly from institution to institution to seek the highest possible rates.
New York developer Arthur Cohen, who owned all of CorEast stock, no longer has any association with the thrift, the OTS said. The Resolution Trust Corp. will operate CorEast while it negotiates a permanent solution for its problems.
CorEast has 31 branches in Roanoke, Richmond and Lynchburg and about $1 billion in 99,572 deposit accounts.
Depositors should continue to make deposits and withdrawals as usual, Plater said. There will be no changes in handling checks, mortgages and loan payments, she said.
All deposits are insured up to $100,000 each. Plater said amounts higher than $100,000 are still at the bank, but the surplus is not covered by federal insurance. She advised people with more than $100,000 in CorEast to go to their branch office to discuss bringing the accounts into compliance with the insurance limits.
CorEast board Chairman and President W. Ronald Dietz was meeting with RTC officials at his office in Richmond Friday afternoon and was unavailable for comment. A woman who answered the phone at his office said she did not know if he still held those titles.
Anderson Shumate, president of CorEast's western region, also was in a meeting and could not be reached.
As recently as last October, Dietz said Cohen planned to pump more money into the thrift to reverse its negative capital ratios. Dietz said then that Cohen would invest enough money to restore CorEast's financial strength.
CorEast also was negotiating at that time with several institutional investors for conversion of its bonds, worth $27.5 million, into preferred stock. CorEast suspended interest payments pending negotiations. Preferred stock counts as capital of an institution, while bonds do not.
Earlier this week, Dietz said in an interview that a tentative agreement had been reached with the bond holders. But he said that final details were in abeyance while Cohen negotiated with the Office of Thrift Supervision over the type of additional investment required.
"It's hard to be a banker these days," Dietz said then.
CorEast was created in May 1988 through merger of First Federal Savings and Loan Association of Roanoke and Colonial Savings and Loan Association of Richmond. Dietz became CorEast's president in June 1989.
At the time of the merger, it was Virginia's fourth-largest thrift. Its new name signified an ambition to become a major player in the East Coast financial market. CorEast also proposed a merger with Vista Federal Savings Bank of Reston, which has branches in the Washington, D.C., area, but the deal fell through.
Cohen had acquired all of the stock of Roanoke's First Federal in April 1986 after a bruising stockholder fight. He paid an estimated $15 million for the shares.
At the time of the fight, First Federal was considered to be a strong institution that invested conservatively in residential mortgages in Western Virginia. Shortly after acquiring First Federal, Cohen opened a New York loan office through a newly created subsidiary called First Equity.
First Equity raised $30 million from the sale of high-risk, high-interest bonds and used the money to convert New York apartment buildings into cooperatives and condominiums. The bonds, offered without an investment rating, were underwritten by Drexel Burnham Lambert, the now-defunct New York securities broker that popularized so-called junk bonds.
The sale increased the assets of the Roanoke thrift by 21 percent in 1987, but its income the following quarter fell to less than half the figure of the previous year.
by CNB