U.S. Accused of Letting S&L; Go ‘On a Joy Ride’ : Panel Told FHLBB Seemingly Ignored Warning Signs at Beverly Hills Savings Before It Failed
Beverly Hills Savings & Loan Assn. embarked on a “joy ride” of high-risk real estate ventures before it failed last April, but Federal Home Loan Bank Board officials seemingly ignored “very clear warning signs of impending disaster,” congressional investigators charged Monday.
The accusations were leveled by Rep. John D. Dingell (D-Mich.), chairman of the House Energy and Commerce oversight subcommittee, and by subcommittee member Rep. Ron Wyden (D-Ore.) as the panel resumed hearings into the firm’s questionable financial practices before it was declared insolvent.
The hearing elicited testimony that two former officers of the S&L;, Robert E. Newberry and Robert A. Steele, may have been involved in financial conflicts of interest.
In an opening statement, Dingell said the S&L; was taken over by the federal government April 24 as a result of investments that made it, in effect, “a real estate development company with all the risks that go with such development.”
Records obtained by the subcommittee show that Beverly Hills Savings in 1982 and 1983 entered into $400 million worth of real estate transactions with Southern California developer James D. Stout.
S&L; Put Up Equity
In almost every instance, the S&L; put up all the equity, with Stout agreeing to manage and rehabilitate the properties so they could be sold, subcommittee investigators said.
The S&L; obtained a 60% share in this partnership, and Stout received 40% for his “expertise,” a subcommittee report said.
Dingell said that Beverly Hills Savings’ insolvency was caused “not by bad mortgage loans to homeowners . . . (but) by the failure of a series of incredibly high-risk deals with developers” in which property sales never reached expectations.
Wyden said the joint ventures with Stout’s firm put the S&L; “on a joy ride that would rival nearby Disneyland until Beverly Hills Savings crashed into the wall last April 24.”
The federal bank board, which oversees the activities of S&Ls;, “appears to have ignored very clear warning signs of impending disaster,” Wyden said, referring to the heavy real estate investments that have produced only scant income.
Alluding to the board’s takeover of Beverly Hills Savings, Wyden declared, “the federal government now is $140 million poorer after the bail-out of this S&L.;” The board has provided this amount to keep the institution alive and to protect depositors. It also has installed a new management team.
Personal Ties
These new managers testified Monday that Newberry, the former executive vice president, had personal ties to Stout in 1983 and received $209,000 in bonuses from Stout on the joint ventures, in addition to Newberry’s salary of $183,000 from the S&L.;
Newberry announced in October, 1983, that he was taking a full-time executive position with Stout’s firm but continued to work on some of the joint ventures for the S&L; for at least three more months, according to Donald Tipping, senior vice president, and Steven Dwyer, vice president for real estate investment.
Newberry has told The Times that there was no conflict of interest in his relationship with Stout. He said the joint real estate ventures were unsuccessful because of poor management by new owners headed by developer Paul Amir, who gained control of Beverly Hills Savings in 1984.
Tipping and Dwyer, however, laid the blame at the feet of Newberry and Steele. Wyden referred to Steele as a “triple-dipper” because, according to the testimony, Steele received a salary of $157,000 from the S&L; while also receiving fees for bringing in new loans. In addition, his private appraisal firm got tens of thousands of dollars for appraising property for Beverly Hills Savings at figures that Tipping said appeared to be too high.
James M. Cirona, a Federal Home Loan Bank Board official in San Francisco, said the board did not intervene sooner at Beverly Hills Savings because it did not see sufficient reason to do so. Dingell said he would seek a more complete answer Friday from Edwin J. Gray, the bank board chairman, and from Norman Raiden, the board’s general counsel, who once was the S&L;’s private attorney.
