Butterfield S&L; Seized by Regulators : FHLBB Critical of Firm’s Real Estate, Restaurant Deals

Butterfield Savings & Loan Assn., bled dry by more than two years of heavy losses from real estate loans and its controversial restaurant operations, was declared insolvent and seized Wednesday evening by the Federal Home Loan Bank Board.

As it has in several other California S&L; takeovers this year, the board immediately chartered a new federal mutual association, appointed a new board of directors and hired a new management team.

Downey Savings & Loan Assn. of Costa Mesa will operate the “new” Butterfield under a management contract.

The new Butterfield S&L; has assumed all of the liabilities as well as the $802.6 million in assets of the old association and will open for business this morning with no interruption in service to customers, a bank board spokeswoman said. All $765.7 million in deposits have been transferred to the new association, and no depositors will lose any of their money, the spokeswoman said.

Chairman Named

Roderick R. Bryan, former president and chief executive of Imperial Savings & Loan Assn., was named chairman of the new five-member board of directors. Bryan also is a director of Summit Savings & Loan Assn. in Santa Rosa, Calif., where he resides.

In a meeting late Wednesday, the new board picked Gerald H. McQuarrie, Downey’s co-founder and chief executive, to serve as Butterfield’s president and chief executive under the short-term management contract. Anne Bacon, a senior vice president at Downey, was named executive vice president of Butterfield.

The two will head a team of about eight Downey managers who will be loaned to Butterfield. A bank board spokeswoman said Wednesday that all but a few of Butterfield’s 300 employees will be retained by the new board.

Program Termed ‘Scheme’

Several senior management people were dismissed Wednesday evening, but their names were not released.

The bank board’s action was announced shortly before 5 p.m. Wednesday in a three-page statement that S&L; industry observers and one bank board official said was one of the most detailed that the agency has ever produced.

The statement used the term “scheme” to describe Butterfield’s deposit-gathering program, which used high interest rates and a nationwide, toll-free telephone banking system to generate deposits, and it criticized several Butterfield operations. It blamed some losses on “poorly underwritten real estate loans and direct investments in real estate” and others on Butterfield’s restaurant operations.

Butterfield has been a target of criticism by FHLBB Chairman Edwin J. Gray for more than three years because of its enthusiastic adoption of California’s liberal investment powers. Gray often criticized Butterfield’s operation of Love’s and Wendy’s restaurant chains. He said the S&L; was using deregulation to get into non-traditional businesses that threatened the stability of the industry.

Executives of Santa Ana-based Butterfield who were replaced could not be reached for comment Wednesday.

Under founding President Donald Endresen, Butterfield S&L; grew from $100 million in assets in 1982 to $820 million in assets at the end of 1984. It had 11 subsidiaries, including units involved in the restaurant business, real estate syndication and development, property management and financial planning.

The bank board’s action Wednesday was limited to the S&L; and its board of directors. Butterfield Equities Corp., the holding company, was not seized, and its board of directors was not replaced.

However, because the holding company’s principal asset was Butterfield S&L;, it appears to survive as little more than an empty shell. Restaurant and real estate operations were units of the S&L.; Bank board officials were unable to list any assets or subsidiaries that will remain under the control of Butterfield Equities Corp.

Wednesday’s takeover was expected, but its timing caught many in the industry by surprise. Butterfield Equities Corp., holding company for the S&L;, had announced Monday that it expected to report more than $15 million in losses for its fiscal 1985 fourth quarter that ended June 30, and that the losses would give the S&L; a negative net worth of more than $10 million.

Not Expected Until Next Week

More than a dozen industry analysts, consultants, attorneys and current and former Butterfield officials contacted since then had said that they expected the bank board to move on a Butterfield takeover.

But most speculated that such action would not come until next week at the earliest because of the difficulty in finding someone to operate an S&L; as complex as Butterfield.

Downey S&L; was chosen, sources said, because of its longtime and profitable involvement in real estate development. The $2.3-billion S&L; is one of the largest shopping-center owners in the country.

Gerry Findley, a Brea-based banking analyst and consultant, said he believes that the Butterfield takeover is symptomatic of “continued turmoil” in the state’s S&L; industry and blamed the S&L;’s demise in part on its plunge into non-traditional lines of business.

But Ernest Leff, an attorney who has represented Butterfield, said he believes that the firm’s involvement in the restaurant business was not as much of a financial as it was a political liability.

“They were a prominent, high-flying institution which was cited frequently by the regulators when they sought to denigrate the activities of the newer associations,” Leff said.

Robert Adelizzi, president of Home Federal Savings & Loan Assn. and chairman of the California League of Savings Institutions, said Butterfield’s collapse was symptomatic of deregulation.

“In the process of deregulation, some will do well and some won’t; some will stumble and some will take their licks and keep moving. It’s consistent with what we’ve seen in other industries that have been deregulated.”

Adelizzi said the government’s open battling with Butterfield was apparently justified. “It may sound like Ed Gray is preaching at times, but he’s been right.”

Anthony Frank, chairman of First Nationwide Savings & Loan Assn. and a director of the Federal Home Loan Bank of San Francisco, said watching high-growth firms like Butterfield is “like going to a Greek tragedy: you know how it’s going to turn out when you first sit down.”