Gibraltar--Giant That Impresses Few Analysts

When talk turns to the best financial performers and most formidable competitors among California’s 10 biggest savings and loan firms, one whose name is not mentioned is Gibraltar Financial.

Gibraltar has impressed few observers with a corporate strategy that has included diversification followed by retrenchment.

Gibraltar recently announced that it is phasing out its operations in corporate banking, equipment leasing and real estate joint development because they either lost money or were not believed to have a bright enough future.

Competitors and financial analysts now view Gibraltar Financial as unfocused and in search of an identity. “I am more impressed with their weaknesses than their strengths,” said Jonathan Gray, an analyst for the New York investment firm of Sanford C. Benstein & Co. “We recommend our clients avoid (the stock).”

Moves Defended

Gibraltar Chairman Herbert J. Young, in an interview in his Beverly Hills office on Wilshire Boulevard, defended the moves. “We’re in a volatile market,” he said. “Change is taking place all the time.”

To be sure, Gibraltar’s financial performance exceeds the national average of its industry, which is still mending from the damage caused by the high interest rates of several years ago. Earnings at Gibraltar Financial have risen slightly in each of the past three years, reaching a record $38.9 million in 1985.

Additionally, the regulatory net worth of its principal subsidiary, Gibraltar Savings, is more than double the federal requirement. A healthy net worth is a must for any savings institution.

Analysts, consultants and competitors, though, generally rate Gibraltar as superior only to American Savings & Loan among the 10 largest California S&Ls.;

Gibraltar, for instance, was the only one of the group to record lower earnings ($8.78 million, off 27%) from January through March. The others, continuing to harvest the fruits of dropping interest rates and higher loan volume, reported profits of as much as double 1985 first-quarter levels.

Part of Gibraltar’s drop in earnings was due to problems in its real estate loan portfolio that forced the company to add $5.5 million to its loan-loss reserves. Another chunk of the blame was placed on sharply higher expenses for advertising and additional lending personnel.

Included as Net Worth

Gibraltar’s net worth, likewise, doesn’t look as healthy when measured by generally accepted accounting principles that do not allow certain long-term debt and the market value of company-owned real estate to be included as net worth.

Gibraltar’s shareholders’ equity, considered a better measure of value for publicly traded companies, was about 2.4% of assets on March 31, the lowest among the nine healthy large associations. Its regulatory net worth exceeds 8%.

In spite of the slow start in 1986, Young said profits should be higher this year than last. The first-quarter cost increases, in part caused by its move to beef up the loan production staff, reflect Gibraltar’s new emphasis on residential loans in California, particularly for apartment buildings, company officials say.

“If there’s a theme for us today, it’s our plan to increase our share of the California market,” Executive Vice President Jerome Nussbaum said.

But investors remain to be convinced.

“The question the Street is now asking,” said one Wall Street analyst who asked not to be identified, “is: ‘How long are they going to stick to that strategy?’ ”