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Santa Monica Institution Sinking


By Jorge Casuso

February 4 -- First Federal Bank -- a local institution that helped generations of Santa Monicans buy homes and start businesses -- could be on the brink of collapse after it was forced to halt lending last month.

Financial experts fear the bank might not be able to weather the nation’s biggest economic crisis since its first branch opened in Downtown Santa Monica in 1929, the year the stock market crashed.

This week, the shares of FirstFed Financial Corp. continued to drop, falling another 6 cents to 79 cents and bringing the stock market value to less than $11 million. And FirstFed, the parent of First Federal Bank of California, reported a fourth-quarter loss of $244.8 million, or $17.91 a share.

The dropping prices comes less than one month after FirstFed – once recognized as one of the top 100 companies to work for in America -- announced it would lay off 62 of its employees, or 10 percent of its total workforce. It is expected the move would save the company, which relocated its headquarters from Santa Monica to Los Angeles last year, some $4.2 million.

“Given the economic pressures we are under, doing so has become necessary,” FirstFed Chief Executive Babette Heimbuch said in a statement

The company, which operates 39 branches in Southern California, four of them in Santa Monica, has strong ties to the beachside city where it was started by Dr. William S. Mortensen, a philanthropist who also helped start Santa Monica Hospital.

“They were very community involved,” said Ed Moosbrugger, the former business editor for the defunct Santa Monica Outlook and a contributor to The Lookout. “They invested in the community. That was a big priority.”

“It was a very family affair,” said Council member Bob Holbrook, who has lived all his life in Santa Monica. “A lot of us wouldn’t be in homes if it wasn’t for First Federal.

“They’ve been such an important part of Santa Monica,” Holbrook said. “I really hope we don’t lose them.”

Holbrook remembers running to the branch Downtown as a kid to pay off the loan for his parent’s television. Later, the bank would finance his first home.

“It was like an all American story for Santa Monica,” Holbrook said. “It grew and prospered.”

The retirement of William S. Mortensen, the grandson of FirstFed’s founder, as Chairman of the Board in 2002 marked the end of an era. Mortenson continued to serve on the boards of a number of charitable and community organizations, including the Los Angeles Metropolitan YMCA, St. John’s Health Center and United Way.

After its founding in 1929, First Federal Bank of California became a federal mutual institution called First Federal Savings and Loan Association of Santa Monica in 1935.

As the company once put it, “First Fed was built on the premise of neighbors helping neighbors.” It was a mission the bank followed for generations.

“I think there were just thousands of people in Santa Monica the bank helped buy homes,” Holbrook said. “I am sure that after World War II when so many GI’s came home, First Federal made loans across the table. They trusted people.”

Then in the early 1980s, after runaway inflation forced it to pay more than its loans were earning, the company went public to stay afloat, converting from a federally chartered mutual association to a federally-chartered stock company in 1983.

The bank also switched its focus from long-term fixed rate loans to adjustable rate mortgages (ARM), which became the company’s staple, according to reports.

Four years later, the holding company, FirstFed Financial Corp., was created and listed on the New York Stock Exchange, and in 1989 First Federal Savings Bank became First Federal Bank of California to better reflect its wide service area.

As more and more borrowers sought ARMs, which were easier to qualify for, First Federal doubled its assets from $4.8 billion at the end of 2003 to $10.5 billion two years later.

But the staid, homespun institution – which counted June Lockhart, the mother on “Lassie,” as a member of its board -- was headed for trouble.

By spring of 2006 reports were predicting doom for the bank, which was focusing on risky home loans. “Sell the FED,” read a headline in one investment publication.

“To listen to some Wall Street skeptics you might conclude that this sleepy savings and loan has taken a figurative dive off the end of the Santa Monica Pier,” a Los Angeles Times financial writer wrote.

This week’s staggering drop in the company’s stock was due to a $220-million provision for loan losses company officials blamed on "continued high levels of loan delinquencies and foreclosures, further deterioration in the California real estate market and the significant increase in unemployment in the fourth quarter."

The loss provision was 10 times what the company set aside in the fourth quarter of 2007, and double the $110-million provision of the third quarter, according to company officials.





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