FCA Rejects Knapp’s Bid for Problem Loans
Financial Corp. of America on Tuesday firmly rejected an offer by its former chairman, Charles W. Knapp, to buy more than $1 billion in problem loans written during his tenure.
In a letter, the FCA board told Knapp that the deal was being turned down because “your qualifications and the structure of the proposal do not satisfy the standards of the board.”
It was clear from the terms and tone of the letter that FCA’s current management is adamantly opposed to any further business dealings with Knapp, who left the company under pressure from federal regulators during a $6.8-billion run on the company’s principal subsidiary, American Savings & Loan Assn., last summer.
The offer to buy the loans came late last month from a syndicate of investors led by Trafalgar Holdings Ltd., a group of companies headed by Knapp and several other former FCA executives.
In a statement, Trafalgar said it was “disappointed that the company considers us adversaries and has summarily rejected the offer, particularly since there appears to be no alternative plan of disposition. We would have been pleased to assist FCA in any way.”
FCA and several shareholder groups have filed suit against Knapp, charging that his lending policies led to huge losses at American Savings, the nation’s largest S&L.;
“If we moved forward with your solicitation, we would both find ourselves in the difficult situation of litigating against each other on one hand and simultaneously being a kind of partner and lender on the other,” the board said.
Knapp’s offer was to pay 20% down in cash for the $1.13-billion portfolio in bad loans and foreclosed real estate, with the remaining 80% to be financed by FCA on a 10-year, interest-only loan. FCA would receive 20% of any profit on the sale of the notes and properties.
The pool of troubled loans includes more than $600 million in loans more than 60 days overdue and $366 million owned through foreclosure. Many of the loans are on slow-selling condominium projects in Southern California.
The board expressed skepticism that Knapp could make the deal work, saying, “It contemplates some sort of profit sharing between our company and you. The success of that would, in large part, depend upon your successful management of the real estate.”
