FSLIC Will Boost Net Worth of Central S
Federal regulators soon will issue “net worth certificates” to wipe out financially ailing Central Savings & Loan’s negative net worth, estimated at more than $56.2 million, according to Central’s newly appointed president and chief executive.
George Leonard, executive vice president of First Federal Savings & Loan of Arizona, which last week signed a 90-day contract with regulators to manage Central, said in an interview Monday that the government’s action means that Central, with $2.2 billion in assets, “will have a positive net worth” by the end of June. Leonard will serve as Central’s president and chief executive over the next three months.
‘Net Worth Certificates’
The Federal Savings and Loan Insurance Corp. will issue so-called net worth certificates to offset Central’s negative net worth, which was $56.2 million as of last Dec. 31. Central’s equity position has worsened since then, Leonard acknowledged Monday.
The certificates, which will be carried on the balance sheet as subordinated debentures, have been used by the government since 1982 to bail out dozens of troubled S&Ls.; No currency changes hands, and the institutions eventually must reimburse the government.
In Central’s case, eliminating the negative net worth will make the S&L; more attractive to a potential buyer.
Federal Home Loan Bank Board officials would not confirm that they planned to issue the certificates and said only that they were “studying methods” of infusing capital into Central.
Despite nearly $70 million in losses last year and nearly $117 million in red ink between 1981 and 1984, Leonard said he believes that Central is “very salvageable.”
“It’s fundamentally a very sound company,” he said. “Its problems were brought on by the recession--some loans were made that (shouldn’t have been), and some investments have not materialized as well as they should have.”
Fifty-year-old Central branched out into real estate development and mortgage banking during the state’s real estate boom of the late 1970s but later got caught in the high-interest-rate squeeze that followed.
In January, 1984, Central’s board fired President Daniel T. McSweeney, who had designed Central’s strategy. Ironically, a savings and loan consulting firm owned by McSweeney was hired by First Federal in the mid-1970s for “strategy and long-range planning” consultation, Leonard said.
Leonard said that Phoenix-based First Federal, with assets of $4.5 billion, is not prohibited from bidding to buy Central. The San Diego association, with 48 branches in Southern and Central California, has held discussions with at least 15 financial institutions about a possible purchase in the past 18 months.
Three companies have been considered possible buyers: Old Stone Bank of Rhode Island, Far West Savings & Loan and American Capital Corp. of Miami.
Last Friday, regulators forced Central’s six-director board to resign and replaced it with five veteran business executives and the First Federal management team. It was only the fourth time that regulators have used a “shared management” approach to try to save a financial institution, according to officials.
Since Friday’s dramatic action, there has been a “net inflow” of deposits at Central, Leonard said. No major personnel changes are planned, he said, adding that he probably will add to Central’s current 700-member work force.
