Beverly Hills Savings Seized U.S. Regulators Cite ‘Unsafe’ Condition
Federal banking regulators seized Beverly Hills Savings & Loan Assn. on Tuesday, saying the S & L was insolvent and operating in an “unsafe and unsound condition.”
The seizure was sparked by the news last week that Beverly Hills Savings is facing a loss of about $100 million in 1984, mostly because of bad real estate loans. Executives of Beverly Hills Savings were not immediately available for comment.
The Federal Home Loan Bank Board, the country’s primary regulatory agency for savings and loans, emphasized that the savings institution and its six branch offices in Southern California would be open for business today, operating under the new name of Beverly Hills Federal Savings & Loan Assn. The seizure is believed to be one of the largest ever undertaken by the bank board. Beverly Hills Savings, with nearly $3 billion in assets and $2.3 billion in deposits, is California’s 21st largest S & L.
Accounts at the S & L are federally insured up to $100,000.
Regulators said the savings institution fell victim to its own rapid growth of the past two years and relied heavily on deposits--known as brokered funds--raised through professional money brokers. A bank board statement also noted that the S & L’s books are “in disarray” while its assets are “characterized by speculative investments and poorly underwritten loans.”
Under terms of the government takeover, Beverly Hills Federal Savings has a new five-member board of directors and a management team from First Nationwide Savings in San Francisco under contract to help run the association, a spokesman from the bank board said. The spokesman added that the arrangement will last until “a permanent solution is found.”
The new chairman of Beverly Hills Federal Savings is R. G. Taylor, a retired Air Force general who is chairman of the Las Vegas-based First Western Savings & Loan Assn.
The other directors are: Thomas F. Carter, a developer from San Diego; George E. Leonard, executive vice president of First Federal Savings & Loan Assn. of Phoenix; Lewis S. Eaton, chief executive of Guarantee Savings & Loan Assn. in Fresno, and W. E. Giraldin, a banking consultant in Anaheim.
Beverly Hills Savings’ latest problems surfaced last Tuesday when it announced that its preliminary audit results for 1984 indicated that the $100-million loss would give the institution a negative net worth of about $65 million. The results were attributed mostly to loans and investments involving real estate.
The firm also revealed at that time that it had signed an agreement giving the Federal Savings & Loan Insurance Corp., an arm of the Federal Home Loan Bank Board, a large measure of control over its affairs. Until Tuesday, there had been no further public announcements by the company or federal authorities.
Beverly Hills developer Paul Amir won control of the S & L a year ago after a bitter proxy fight with the former management. The federal takeover ended Amir’s expressed hopes to try to salvage the S & L by letting his president and chief operating officer, Michael P. Flaherty, run the operation.
Amir owned 17% of the firm’s 3.66 million shares, for which he paid about $12 million, according to its last proxy statement. Trading in the firm’s stock on the over-the-counter market had been halted since news of its crisis was released. It last traded at $3.25 a share.
In a development earlier Tuesday, the Amir management filed a $100-million lawsuit against the S& L’s former management and its former outside auditors, Touche Ross.
The suit in Los Angeles County Superior Court alleges that the S & L’s former chairman, Dennis M. Fitzpatrick, and five other officers and directors had violated their fiduciary duty and diverted corporate assets during a “four-year financial joy ride.”
Analysis shows that the S & L now holds investment interests in real estate worth “millions of dollars less than their purchase price” as well as “millions of dollars of bad loans,” the suit charges.
The defendants are alleged in the suit to have entered these transactions at “a very rapid pace with little or no regard for the true value . . . “ in order to make the institution grow rapidly.
Among other things, the suit alleges that the defendants caused Beverly Hills Savings to enter real estate transactions on the basis of personal relationships between certain members of the former management and third parties.
The action also alleges that “certain members of prior management” received money and benefitted personally “in return for causing the S & L to enter real estate transactions with certain third parties.”
The defendants also were accused of causing Beverly Hills Savings to enter real estate transactions without adequate or independent appraisals and of paying “excessive, unnecessary and/or inappropriate fees and commissions to certain parties for bringing investments to the association.”
In one investment, the suit alleges, the former management misled the firm’s board of directors and senior loan committee in connection with its investment in the Hotel Inter-Continental in San Diego.
This was done, the suit added, “by telling them that third parties would put substantial money in the project and that BHSL’s ultimate equity investment would total approximately $1 million, when, in fact, BHSL has put up substantially all the money for this project, totaling far in excess of $1 million.”
The Amir suit follows a stockholder class-action suit filed last Thursday in Superior Court against the Fitzpatrick management, as well as against Touche Ross. That suit alleges that the S & L’s stock price was “grossly inflated” since 1982 by misleading financial reports.
Two more class actions against 10 members of the S & L’s former management and Touche Ross were filed Tuesday in U.S. District Court here, one by stockholder Simon Gonzalez of Santa Monica and one by Leona Lehman of La Jolla. The suits allege violation of federal securities laws by overstating assets, according to attorney Jack Cornblit, who filed the suits. Fitzpatrick previously has rejected any implication that he or his management team was responsible for Beverly Hills Savings’ current problems, blaming them instead on current executives.
