Chairwoman steps down at loss-battered First Federal Bank of California

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FirstFed Financial Corp. said today that its chairwoman and chief executive, Babette E. Heimbuch, is resigning after 13 years at the helm of the savings and loan, whose fortunes rose and fell with the boom and bust in the tricky loans known as pay-option adjustable-rate mortgages.

In a statement, the Los Angeles firm said Heimbuch, 61, stepped down as chairwoman of FirstFed and its subsidiary, First Federal Bank of California, on Wednesday. She is to retire as CEO and as a director of the thrift and its holding company Dec. 31.

Independent FirstFed director Brian Argrett, head of private equity firm Fulcrum Capital Group, is the new chairman, the company said. Heimbuch will be replaced as chief executive by James Giraldin, FirstFed’s president and chief operating officer. Other key executives will stay on and independent director William Rutledge, former CEO of Allegheny-Teledyne Inc., has become vice chairman of the board.

Beaten down by losses on billions of dollars in pay-option loans, FirstFed has been pursuing an 11th-hour effort to raise capital through a stock sale to ward off a takeover by bank regulators. The announcement that Heimbuch would depart came after the close of regular stock trading on a day when FirstFed shares fell by a penny to 33 cents.

Heimbuch, an accountant who joined FirstFed in 1982 as chief financial officer, became its chairwoman and CEO in 1996. She said in a statement that she had hoped to retire earlier but stayed on to help the thrift address its problems by easing loan terms for stressed-out borrowers and working with regulators and potential investors.

‘Now, both the bank and the economy are experiencing positive trends, and I am confident that the executive team at First Federal Bank of California is well positioned to complete our capital-raising effort,’ Heimbuch said in the bank’s statement announcing the changes.

The pay-option mortgages gave borrowers a monthly choice during the early years of the loan: Pay the accrued interest and some of the principal, pay the interest only so the loan balance stayed the same, or pay so little that the balance went up instead of down.

During the housing boom, borrowers commonly paid the minimum, which left them owing more than when they started as home prices began their long fall. Now the easy-money periods are running out on option-ARMs written during the boom, often sending payments skyrocketing.

FirstFed’s assets more than doubled from $4.8 billion at the end of 2003 to $10.5 billion at the end of 2005 as the bank and its customers gorged on the adjustable-rate loans. It backed away from making the risky loans before many others in the industry and shrank to $6.2 billion in assets as of Sept. 30.

Heimbuch and Giraldin couldn’t be reached to elaborate on the announcements. In the bank’s statement, Giraldin noted that FirstFed has reported nine consecutive months of declining delinquencies, the last six of which have also shown decreasing loss rates.

‘Our loan modification program has reduced the risk of losses in our mortgage portfolio, and our retail deposits are growing,’ he said.

-- E. Scott Reckard