Sun Savings Trades Bad Loans for Good With Seattle S & L

Sun Savings & Loan, continuing its effort to boost its revenue-producing base, said Monday it had exchanged $4 million in bad loans for $4 million in performing loans with a Seattle savings and loan.

The swap is the first phase of an eventual $12-million loan exchange with Westside Federal Savings & Loan in Seattle, according to John McEwan, Sun’s president and chief executive.

Sun had been a participating lender and Westside was the lead lender in all of the swapped loans.

Officials of both companies are negotiating a swap for the remaining $8 million in loans, which likely will be traded in two $4-million increments by the end of the year.

Sun will become the lead lender on the exchanged loans, providing the University City-based S&L; with “complete control,” McEwan said. The majority of the first-phase loan swap involves a housing project in Escondido.

The loan swap was first announced at Sun’s annual meeting in May, although McEwan declined to identify Westside Federal until Monday.

About $9 million of the $12 million in loans to be swapped with Westside Federal are included in Sun’s $36.1 million in non-performing loans.

If the deal had not gone through, Sun officials had hinted, they planned to initiate legal proceedings against Westside Federal for getting Sun involved in the loans in the first place.

Monday’s loan swap announcement came less than two weeks after board approval of a controversial $7.2-million capital infusion from a public stock offering and from a local developer whose $2.5-million investment is predicated on Sun becoming the major tenant and equity partner in his La Jolla office building.

The deal involves developer Victor Fargo, who will use the proceeds from a permanent refinancing of the office building to inject Sun with a much-needed cash infusion. Fargo in turn will own 9.9% of Sun’s outstanding shares, just shy of the 10% equity level that triggers a change-of-ownership application with federal regulators.

Fargo is a friend of ousted Sun Chairman Daniel W. Dierdorff and the brother-in-law of Sun director Ted Van Leeuwen.

Meanwhile, Sun’s stock, which soared in heavy trading to $6.75 from $4.50 in the four days prior to last month’s capital infusion announcement, has settled back down to $5.25 on the American Stock Exchange. The Securities and Exchange Commission reportedly is investigating why the stock rose so dramatically and why so many shares--15,500 in a three-day period--were traded.

Sun operates four branches in San Diego County and one in Mission Viejo in Orange County.