House Probes Beverly Hills S&L; Failure : Ex-Chairman Defends Actions to Subcommittee
The former chairman of the insolvent Beverly Hills Savings & Loan Assn. told a congressional hearing Wednesday that “no one has put more effort” into trying to make the institution a financial success.
Dennis Fitzpatrick said he was undergoing “great distress to be here today” as a House subcommittee examined the failure of the association, seized by the Federal Home Loan Bank Board on April 24.
The association’s losses on real estate loans had wiped out its capital, leading to the takeover by federal regulators. For 1984, the association had indicated that it expected a $100-million loss.
“The actual loss has not yet been determined” and an audit may not be completed until the end of July, Harold Schultz, a partner in the accounting firm of Coopers & Lybrand, told the House Energy and Commerce oversight subcommittee Wednesday.
Moreover, the records were inadequate on some of the larger loans and joint ventures in which the association was involved, Schultz and other officials of the firm explained.
Assets Zoomed Over 5 Years
In the six months before it failed, Beverly Hills Savings & Loan retained three different independent accounting firms. The subcommittee is investigating the performance of the accountants and federal regulators in dealing with the association, particularly during the five years when its assets zoomed to $3 billion from $400 million.
The “earnings and net worth were reported with imaginative methods, which still only barely kept the thrift afloat,” according to a statement by Rep. John D. Dingell (D-Mich.), the subcommittee chairman.
At Wednesday’s session, the first of three scheduled meetings, Dingell said: “We expect to hear testimony of high-risk lending and joint-venture arrangements, inadequate or non-existent control systems, poor lending procedures, possible conflicts of interest by managers and lawyers (and) lavish management perks and compensation.”
Fitzpatrick defended the evaluation of real estate properties purchased during his tenure, which ended in 1983 when developer Paul Amir took control after a proxy fight. Amir has sued Fitzpatrick and other former officials of the association, alleging that they were responsible for buying overpriced real estate and making bad loans to spur the thrift’s rapid growth.
Fitzpatrick conceded that he had embarked on an aggressive growth program but said that it was necessary because the savings and loan industry as a whole faced considerable difficulties beginning in 1980.
“It became apparent to me . . . that we could no longer allow ourselves to be subject to the vagueness of the money market,” he said. “We could not survive if we continued to do business in the traditional fashion.”