CalFed's Harshfield Pulls No Punches Discussing Both Legislators and Rivals
LOS ANGELES -- A year after arriving on the scene at California Federal Bank, Edward G. Harshfield is as brash as ever. The in-your-face attitude of California Federal's president and chief executive is reflected in his Wilshire Boulevard office.
In one corner is a giant plastic dinosaur whose head is covered by a photo of Herbert Sandler, the Northern California thrift executive who unsuccessfully tried to buy him out.
Atop a shelf is a framed copy of a wire transfer for more than $3 million, Mr. Harshfield's share of the profits made by a partnership he directed for Merrill Lynch & Co., which bought and sold thrifts in Ohio and New Jersey.
The 58-year-old Mr. Harshfield can also boast a strong record of accomplishment at California Federal. His five-part restructuring plan, now virtually completed, has recapitalized one of the nation's biggest savings institutions, cleansed its balance sheet, and restored it to profitability.
Analysts speculate that Mr. Harshfield will soon cash in on the turnaround by selling the thrift.
Never shy about expressing his views, California Federal's chief spoke about the thrift's future in an interview, peppering his remarks with pithy comments on regulators, lawmakers, and rivals.
Q.: Are you satisfied with the way your restructuring plan worked out?
HARSHFIELD: I am hard-pressed to think of anything that we said we would do that we didn't meet and better.
In the case of the sale of the Florida branches [to NationsBank], we got a higher premium than we thought. With respect to the bulk sales, we said we would sell $1.2 billion and that it would cost us $280 million. We sold $1.3 billion, and it cost us $270 million or $275 million.
Q.: Didn't you have to penalize your shareholders to complete the plan?
HARSHFIELD: I would argue that the shareholders gave up nothing and that they improved their position substantially. Those shareholders who participated in the rights offering didn't suffer any dilution to speak of.
The real value of the company has probably grown at an internal rate of return of about 50% or 60%. I get there by valuing the company as we knew it before the restructuring and valuing the company today.
Q.: In your zeal to sell problem assets in bulk, didn't you leave some value on the table?
HARSHFIELD: The problem was that we were losing capital at a rate of roughly $40 million to $50 million per quarter because of the problem-asset overhang. If we had gone below 4% capital, we would have had to default on our preferred dividend. We would have breached those ratios some time last spring. Once we had defaulted on the preferred, it would have been very difficult to go to the capital markets.
Q.: Why didn't you sell a little bit at a time?
HARSHFIELD: Over time, we might have gotten a better face-value price, but our costs would have been higher. We would have had the additional carrying costs in a rising interest rate environment.
At the end of the day, getting rid of it up-front did cost us something. But it sure wasn't $275 million. I would be surprised if it were more than $20 million or $25 million.
Q.: Couldn't you have proceeded like Glendale Federal, which completed bulk sales without taking hundreds of millions of dollars in writedowns?
HARSHFIELD: People often point to my friend [Glendale Federal chairman and chief executive] Steve Trafton and say, "See, he's protecting shareholder value." The facts are that he cherry-picked the bulk sales so he wouldn't have to take losses. And he isn't getting any better prices than we got four or five months ago.
Q.: Now that you have cleaned up California Federal, what is its earnings power?
HARSHFIELD: It's a thrift. It's in the single-family-housing business. It's in a highly competitive market. It's a plain-vanilla, inch-a-day business. …