Entrepreneur’s Zeal Tied to S & L Failure
Monday, Aug. 5, was to have been a day of celebration at Butterfield Equities Corp.
President and co-founder Donald Endresen was about to turn 40 and his staff had planned a party.
They were determined to enjoy the day, even though the diversified financial corporation Endresen had founded with his father, David, and a close family friend nine years earlier was awash in red ink, hounded by regulators and split by an internal debate.
But at 8:45 a.m. the phone in the president’s office rang, bringing an end to any plans for a celebration. The call signaled the end of the Endresen empire, which ran the gamut from real estate and restaurants to savings and loans.
It was an empire built largely by one man, Donald Endresen, and--as many co-workers and friends now say--was brought down by the same combination of entrepreneurial drive and bullheadedness that enabled it to be built at all.
Call From the SEC
The call was from the Securities and Exchange Commission’s enforcement chief in Washington, saying that trading in Butterfield’s stock had been halted. The watchdog agency had heard that Butterfield Equities was anticipating a huge fourth-quarter loss that would plunge the $800-million Butterfield Savings & Loan Assn. into a deficit.
For the next four hours, as the party food piled on the polished rosewood table in the directors’ meeting room grew cold, Butterfield executives worked feverishly to craft a statement disclosing its financial status that would satisfy the SEC’s demands, meet the approval of the California Department of Savings and Loans and the federal Home Loan Bank Board and, at the same time, minimize damage to the company’s image.
But the public image that Butterfield wanted to project--a record of fabulous growth and successes--does not jibe with insiders’ story of how Butterfield grew and why it died.
That story, pulled together from company documents, interviews with real estate and savings and loan professionals, a number of current and former Butterfield insiders, and discussions with Don Endresen, provide a case study of a corporation that grew too big and a manager who could not--or would not--recognize that the time had come to change or step aside.
Endresen ‘Not Suited’
In an interview last Thursday, just 24 hours after the Federal Home Loan Bank Board seized control of Butterfield S & L and its subsidiaries, Endresen acknowledged that he is “not suited” to be a manager in such a tightly regulated business as the S & L industry.
“Don knew where we were going and what we were doing, and he knew that he knew best,” said one former Butterfield official. The official, who asked not to be identified, said he admires Endresen, but said Endresen’s need to be in total control of every aspect of the business was a primary factor in Butterfield’s decline.
Randy Grimm, who was Butterfield’s marketing director from January, 1983, until May, 1984, agreed.
Grimm said that when he was hired to establish a marketing unit for Butterfield Equities, the company still was in Brea, with 75 core managers and 275 line employees spread out among nearly a dozen operating divisions.
“I had all the support I needed to hire good people,” Grimm said, “but I saw a real penchant by management to spend heavily. I was always told not to worry about where the money was coming from, that Don had always found the money somewhere.”
As a growing company mainly involved in real estate syndication, letting Don Endresen find the money worked fine. But when Butterfield acquired its savings and loan and began using depositors’ funds to finance mortgages, huge real estate investments and two restaurant chains, thrift industry regulators as well as competitors took a dim view of letting him continue with what many saw as a seat-of-the-pants approach to managing a conglomerate.
Lost Some Executives
Regulators and competitors were not the only ones at odds with Endresen. A number of executives left the company in 1984 and 1985 because they could not envision Endresen changing and could not see the company surviving without that change, sources said.
Endresen decided to push his company into the S & L business when the Federal Depository Institutions Deregulation Act was passed in 1980.
The company, then a real estate syndicator involved mainly in buying run-down apartments and refurbishing them, bought a large minority interest in Butterfield S & L of Temecula and arranged for Don Endresen to become president of the S & L. His younger brother, William, was named executive vice president and chief executive officer.
A year after Butterfield opened for business, it bought Kern Savings & Loan Assn. of Bakersfield, doubling its assets to nearly $100 million.
The assets, according to Don Endresen, were used during 1981 and 1982 to finance loans on expensive residential properties in Southern California coastal areas.
The loans were risky because there was not much of a secondary market for such large mortgages at the time, meaning Butterfield would have to hold on to them.
“But our policy was based on the belief--my belief and others’--that real estate values in Southern California would never go down,” Endresen said.
Writing Off Millions
Endresen said that, in 1983 and 1984, when it was aggressively seeking deposits from money brokers and institutions to fuel its land purchases, Butterfield was writing off millions of dollars of losses incurred on its early residential loans.
The same story has been told by dozens of Southland banking and S & L officials in recent years, but in most cases the institutions survived by taking their losses and rethinking their plans.
In Butterfield’s case, Endresen decided that the way out lay in growth.
“So we grew dramatically, with about $50 million monthly in loan production to dilute the impact of those losses . . . and because we were growing and had a need for capital, we went out and acquired real estate,” he said.
Butterfield traded preferred stock--$25-million worth of it--for apartments and raw land in Texas, Louisiana, Oregon, Washington and California in late 1983 and 1984. The land was pumped into the S & L, where its appraised value was added to the books to prop up net worth.
Criticism From Gray
Endresen came under fire from Edwin Gray, chairman of the Federal Home Loan Bank board, who missed few chances to publicly criticize Butterfield’s decision to invest S & L assets in a restaurant division that owned the Love’s chain of barbecue restaurants and a large Wendy’s hamburger restaurant franchise territory.
And Butterfield S & L, because of its growth and its reliance on expensive brokered deposits to fuel that growth, often was cited by regulators as an example of an institution that was misusing deregulation, growing too fast, getting involved in too many high-risk ventures and jeopardizing the S & L deposit-insurance fund.
The end began late in 1984 when the bank board told Butterfield to sign a no-growth agreement. “With the overhead we had,” Endresen said, “we needed to be close to $1 billion in assets to break even. When growth was limited at the $830-million range, we had no chance to get to the break-even point.
“I think in a large sense we were caught in the backlash of deregulation,” he said.
Although in several interviews in 1983 and 1984 Endresen was highly critical of the bank board’s growing re-regulation of the S & L industry, he said last week that he now sees what was happening.
‘I’m Not the Right One’
Endresen said he believes that his ideas were misunderstood--that, “because of my person and temperament, I’m not the right one to implement them at this point in the evolution of the industry.”
The statement by Butterfield Equities Corp., finally issued last week, says the company had been improving its operating performance but still anticipated a fiscal fourth-quarter loss in excess of $15 million. The loss would pull the S & L’s net worth down to a negative $10 million or worse, the statement says, adding that Butterfield Equities was doing everything it could to return to profitability, including selling off half of the S & L branches and most of its vast real estate holdings.
Two days later, at 4 p.m. last Wednesday, agents of the Federal Home Loan Bank Board seized Butterfield S & L, ousted the board of directors--including Endresen and his father and brother--and established the S & L as a “new” federal mutual association.
