MARKET BEAT : For S&L; Stocks, Attractive Looks May Be Deceiving : Thrifts: With the state’s recession continuing to deepen, it’s not at all clear that the worst is over for the industry.

Some California savings and loan stocks have sprung to life in recent weeks, apparently attracting bargain hunters who believe that the industry’s worst troubles are past.

That’s probably a much too optimistic assumption, considering the state’s deepening recession. But if interest rates continue to ease in the near-term, the S&L; stocks’ advance could take on a life of its own. Psychology may overpower the facts, at least into September.

Since the end of June, L.A.-based Coast Savings Financial shares have jumped from $4.125 to $7.625, for a gain of 85%. Also surging since June: Golden West Financial, up 14%, and Great Western Financial, up 13%, both rising about three times as much as the average stock.

There has even been increased interest in such deeply troubled institutions as HomeFed Corp., the San Diego-based S&L; whose finances deteriorated significantly in the second quarter. HomeFed stock traded as low as $1.50 in July but has since rebounded to $2.50.

The stocks’ gains have been driven in part by the latest slide in market interest rates. The Federal Reserve has pushed rates lower to help re-energize the faltering economy. Lower rates generally help S&Ls; by cutting their deposit costs while at the same time boosting home sales and thus mortgage financing.

Some investors also seem to be enthused by Coast Savings’ ability to raise its capital, or net worth, out of the danger zone. By selling assets and paying off debt in the first half, Coast boosted its “tangible” capital to 2.6% of assets at June 30 from 2.01% at Dec. 31, lifting itself comfortably above the 1.5% federal minimum.

“I think they’ve worked some miracles,” says Campbell Chaney, analyst at Sutro & Co. in San Francisco. “That surprised a lot of people.”

Most of the major California S&Ls;, except for HomeFed, met the minimum capital standards as of June 30.

An undercapitalized institution becomes a candidate for seizure by the government--which is what happened to San Diego-based Great American Bank on Friday.

Great American’s stock traded at $7.50 as recently as last year. Friday, it was worth 16 cents, and in all probability it now is worthless.

Great American’s failure is a reminder that bombs still are going off in the S&L; industry. Investors tempted to buy the stocks even of the strongest S&Ls; should realize that this remains a dangerous game: though the stocks may look cheap, losing 100% of your money is a distinct possibility. Too much is unknown.

Some of the issues S&L; investors must mull:

* How much capital is enough? Even though most big California S&Ls; have adequate capital for now, some are close to the edge. The government has three separate capital tests, all imposed in the wake of the S&L; debacle of the late-1980s, and all designed to keep surviving S&Ls; strong enough so that they don’t become wards of the Federal Deposit Insurance Corp. (and thus taxpayers).

Tangible capital (basically, real money) must total at least 1.5% of an S&L;’s assets. Core capital, or real money plus some intangible net worth, must total at least 3%, and that’s expected to be raised to 4% soon, Chaney says. And risk-based capital, which takes into account the kinds of businesses an S&L; engages in, must be at least 7.2% of “risk-adjusted” assets.

As the chart shows, S&Ls; such as CalFed (parent of California Federal) and Glenfed (parent of Glendale Federal) remain far below competitors such as Ahmanson (Home Savings) and Downey Savings in the capital sweepstakes. In the long run, capital will determine an S&L;’s growth rate and thus its success.

* How many bad loans loom? A continuing threat to S&Ls;’ capital is the prospect of further loan losses if the economy continues to sink. Between Jan. 1 and June 30 of this year, nonperforming loans jumped sharply at most big S&Ls.; Ahmanson’s nonperforming loans and restructured loans, measured as a percentage of total assets, rose to 3.4% from 2.5%.

While most California S&Ls; are primarily home mortgage lenders, most also did varying amounts of commercial real estate financing in the ‘80s. That is where the bulk of their writeoffs have occurred so far, as the overbuilt office market has collapsed nationwide.

Perhaps more disquieting is that delinquencies on home mortgages also have been rising, as layoffs take their toll. While still relatively low, the home-loan delinquency rate is worrisome for the S&Ls.;

Analyst Jonathan Gray at Sanford C. Bernstein & Co. in New York believes that Ahmanson can earn $2.50 a share next year, up from an expected $2 a share this year. But he admits, “If problem assets (residential and commercial) continue to rise as they have this year, next year’s earnings are in doubt.”

* Will home sales continue to recover? Even if S&Ls;’ problem loans stabilize, the industry needs a strong housing market to turn a good profit. And though most of the California giants do business in other regions as well, the Golden State remains their bread and butter.

After the usual spring surge, many S&Ls; aren’t seeing the business they had hoped for this summer in new mortgages and refinancings. “We’ve definitely seen a slowdown in the last six weeks,” says William Callender, chief executive of CalFed Bank.

Lower interest rates could help spur mortgage demand, of course. Even so, Sutro’s Chaney has decided against recommending any of the major S&L; stocks outside of Oakland-based Golden West, parent of World Savings.

Golden West has long been the model of efficiency in the S&L; industry, with exceptional capital and an incredibly low percentage of bad loans. Gray, another Golden West fan, believes the firm will earn $3.55 a share this year and $3.95 next year. At the current stock price of $40.375, Golden West sells for just 10 times estimated 1992 earnings.

If interest rates continue to fall, Golden West’s stock is likely to rise even if business remains slow, simply because some big investors will be compelled to find low-risk ways to “play” lower rates.

Other California S&L; stocks may benefit in the short-term from lower rates as well. At $5 to $7 a share, these stocks become a speculator’s delight. And as the stocks move up, they force “short sellers”--who have bet on lower stock prices--to cover their positions. That sparks even more buying, which can cause prices to shoot higher seemingly without reason.

But for anyone other than nimble traders, Chaney believes that the economic backdrop--especially the threat of higher home-mortgage loan losses before year’s end--means there’s too much risk in most S&L; stocks.

“Loan delinquencies will continue to rise until there’s some improvement in the employment picture,” he says, and there’s no evidence to suggest any turn yet.

CalFed’s Callender confirms that home mortgage delinquencies at his S&L; have continued to increase this summer, though “the rate of increase is declining.”

Would he feel comfortable projecting CalFed’s earnings in the current quarter, or for the year? Not a chance, Callender says. “It’s just too uncertain out there.”

The Lowdown on California S&L; Stocks Some California savings and loan stocks have risen sharply over the past month. Here’s a look at the stocks’ trends, as well as key measures of financial health as of June 30. The S&Ls; are ranked by capital strength (“tangible” capital as a percentage of total assets). Also shown are “core” capital ratios and non-performing assets as a percentage of assets.

52-week Fri. Chng. since Capital Stock high/low close June 30 Tangible Downey Savings 18 3/8-10 1/8 16 1/2 +2% 5.8% Golden West 42 3/4-17 5/8 40 3/8 +14% 5.1% Great Western 20 1/2-8 1/2 20 1/8 +13% 4.5% Ahmanson 20 1/4-10 5/8 18 3/8 +1% 3.7% CalFed 10 1/4-2 1/8 5 1/8 -13% 2.9% Coast Savings 7 1/2-1 5/8 7 5/8 +85% 2.6% Glenfed 11 1/8-3 1/2 6 1/4 +16% 2.0% HomeFed 10 1/4-1 1/2 2 1/2 unch. 1.8%

ratios: N-P Stock Core assets Downey Savings 5.8% 0.5% Golden West 6.4% 0.9% Great Western 4.5% 3.5% Ahmanson 4.5% 3.4% CalFed 4.5% 4.8% Coast Savings 4.1% 4.3% Glenfed 3.6% 3.3% HomeFed 2.6% 10.0%

Source: Sutro & Co.; institutions listed. All stocks traded on NYSE.