Westinghouse takes $975 million charge

February 28, 1991|By Kim Clark

Deciding to bail out of its troubled "junk" bond, real estate and corporate-takeover investments, Westinghouse Electric Corp. announced yesterday it would get rid of parts of its financial-services division and take a pretax charge of $975 million.

The decision to get out of the high-yield, high-risk junk-bond market and restructure the Westinghouse Financial Services subsidiary will turn Westinghouse's previously reported fourth-quarter profit of $270 million into a loss of $449 million, the company said.

The Pittsburgh-based company also warned that it expects its profits to suffer for the next five months.

Company spokesman Ronald E.Hart said the write-off was not )) likely to have much impact on Westinghouse's Maryland operations, since the financial division's 650 employees are concentrated at the company's Pittsburgh headquarters. He said he expects the financial division to lay off about 65 employees.

Westinghouse's electronics division, Maryland's largest industrial employer, recently announced it would lay off 1,200 workers by the end of February because of a reduction in federal defense contracts.

Westinghouse's restatement of its 1990 earnings -- dropping the previously announced unaudited annual profit of $1 billion to $268 million -- surprised many investors yesterday and pushed Westinghouse's stock price down $2.125, to $27. New York Stock Exchange trading of Westinghouse's stock was halted for an hour and 38 minutes during the announcement yesterday afternoon.

In addition, Moody's Investors Service downgraded its ratings of the parent company's bonds one notch.

Moody's analyst Alfred Pastore praised Westinghouse's overall "very strong fundamentals" but said, "You don't have to be a rocket scientist to see that a company that heavily involved in real estate might have some trouble. . . . The real estate markets have been bad for quite a while."

Mr. Hart blamed widespread problems in real estate, finance and retailing. The financial-services division's investments tended to be small and well-diversified, and the company suffered from failures such as the bankruptcy of the Hills department store chain and troubles in the hotel industry, he said.

Even though Westinghouse will invest $525 million in the financial-

services subsidiary to strengthen the division's balance sheet, Mr. Hart said, the parent company is not changing any of its other capital-spending plans.

In addition, the Westinghouse moves will entail:

* A sell-off of about $3 billion of the financial-services division's $12 billion in assets, including a reduction in its commercial paper holdings by as much as $1.5 billion.

* A stock offering to raise $600 million. The company said it plans to raise $500 million of that amount in a public offering soon.

* An end to Westinghouse's 8-month-old stock-repurchase program. The company had spent $173 million to buy back more than 5 million shares since May as a part of a plan to eventually repurchase 20 million shares.

* Liquidation of junk-bond holdings and a promise to limit new lending to safer investments. Industry analysts said Westinghouse had nearly $500 million worth of junk bonds last fall. Yesterday's charge knocked $300 million off of their value, Mr. Hart said.

* A write-down of many of Westinghouse's real estate holdings. Westinghouse, which entered into contracts last year to sell about $200 million worth of its holdings, said $425 million of yesterday's charge-off resulted from the decline in commercial real estate values.

Last fall, many investment analysts noted that Westinghouse's financial subsidiary had nearly $1 billion invested in the hotel industry, which was suffering from overbuilding and falling values.

The restructuring is a turnabout for Westinghouse, which as recently as October was promising not to sell its junk bonds.

The financial-services subsidiary, started in 1954, consists primarily of Westinghouse Credit Corp. Last month, Westinghouse said the division would have a profit of $128 million in 1990, down 19 percent from 1989's record earnings.

Mr. Hart said the division's Westinghouse Community holdings of real estate in Florida and Arizona and the division's recent acquisitions of troubled banks in Illinois were not part of the problem.

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