Mercury S & L Posts a $3.8-Million Loss

HUNTINGTON BEACH —  Mercury Savings & Loan posted a $3.8-million net loss for the third quarter, the fourth straight quarterly loss for the Huntington Beach thrift.

In reporting the loss, Mercury again acknowledged that it must strengthen its capital position “through some merger or combination, including a possible sale of the institution.”

Mercury announced last week that it had hired Merrill Lynch Capital Markets to help the S&L; figure out ways to raise capital or sell the institution. Industry analysts said all summer that Mercury Chairman Leonard Shane would have to peddle the thrift to get the cash the institution needs.

Shane, however, maintains that his plan to eliminate dividends, reduce the S&L;’s assets and sell its five Northern California branches will bring the thrift into compliance with the new capital levels required by the federal law enacted to bail out the S&L; industry’s deposit insurance system.

Shane said Mercury has reached a tentative agreement to sell the Northern California branches, but he would not identify the buyer. He said he hopes to close the deal within six weeks.

“We would anticipate that a sale would make at least the fourth quarter profitable, and perhaps the whole year,” he said. He added, though, that the deal is subject to a number of conditions and is “not a sure thing.” Other bidders are in the wings, however, he said.

Selling those branches would reduce Mercury’s total assets by $220,000, Shane said. At the end of September, Mercury’s total assets had fallen 13% to $2.25 billion, from $2.6 billion a year earlier. Mercury wants to reduce its assets to $2 billion by the end of the year.

Shane attributed the third-quarter loss mainly to a sluggish mortgage market and to the thrift’s decision to reduce its assets by, in part, curtailing loans. The loss “really is not a major item,” he said.

Shane did not disclose Mercury’s capital level--an institution’s final reserve against losses--but he did admit that it was inadequate.

At the end of June, Mercury’s tangible capital--one of the new measures to indicate capital adequacy--was 0.75% of its assets, well below the 1.5% level the new law requires, analysts said.

Total revenues for the 1989 third quarter were $54.8 million, 7% under the $58.8 million for the period last year. Mercury posted profits of $1.4 million for third quarter last year.

For the first nine months, Mercury posted a net loss of $5.4 million, down from a net income of $4 million for the period last year. Revenue for the period this year rose 3% to $180.3 million from $174.3 million for the year before.

For the last quarter of 1988, however, Mercury posted a loss that wiped out the profits of the previous nine months; the thrift reported a $13.7-million loss for the year.

Shane attributed all of last year’s loss and nearly half of the losses so far this year to accounting adjustments that had to be made on overvalued assets.