FHLBB Hits Failed S&L;’s Spending : Centennial’s European Chef, Jet and $132,000 Party Cited
Centennial Savings & Loan Assn., the Santa Rosa thrift seized by federal regulators Tuesday, broke federal banking rules, made loans based on faulty appraisals and ran up extraordinary expenses for an institution of its size, according to a statement issued by the Federal Home Loan Bank Board.
The expenses included $48,000 a year for a European chef, $132,000 for a single Christmas party, $25,000 a month for a jet used on some questionable trips and a 1983 annual report that cost roughly $90 per shareholder to publish, the FHLBB said.
Centennial Chairman and President Erwin Hansen’s salary wasn’t disclosed, but he received bonuses totaling $819,000 in 1983 and 1984, according to the statement.
Centennial, with $404.6 million in assets, is roughly the 70th largest of California’s 212 thrifts. The state-chartered thrift was declared insolvent this week by the FHLBB, which seized and reconstituted it as a federally chartered, depositor-owned thrift.
The FHLBB said it acted to maintain business as usual at Centennial’s seven branches, all in Northern California, and that the high operating expenses played a role in the insolvency. Also to blame were the thrift’s high cost of deposits--82% came from high-cost certificates--and risky, low-yielding investments.
“It doesn’t have any effect on depositors,” FHLBB spokeswoman Ann Barnes said of the seizure. “There has been no interruption in service.”
New Management
The Federal Savings and Loan Insurance Corp., meanwhile, purchased an undisclosed quantity of “income capital certificates,” a non-cash arrangement whereby the insurance corporation assumes Centennial’s net-worth deficit until the new institution can erase the deficit using future earnings.
The FHLBB also installed new management. It fired Centennial’s directors and top executives, including the 53-year-old Hansen, who was once a chief accountant for the FHLBB in Washington. Named chairman of the new Centennial board was Jay Janis, a Los Angeles banking consultant who was chairman of the FHLBB in 1979 and 1980.
To run the association on a day-to-day basis, the FHLBB brought in Great Western Financial Corp. of Beverly Hills under a one-year management contract, and several top executives of the $23.8-billion financial corporation were in Santa Rosa on Wednesday. Among them were Anthony C. La Scala, 61, president of the company’s retail banking division, who heads the new management team.
Neither Hansen nor La Scala could be reached for comment.
The FHLBB also said that it will investigate Centennial’s insolvency to determine whether it should sue to recover the FSLIC’s losses and that it will cooperate with any investigations by state and federal law enforcement authorities. It would not say whether any such investigations are under way.
Centennial’s roughly 350 shareholders appear to have lost all of their investment. In an interview two weeks ago, Hansen said that about seven individuals held 75% of the stock and that Centennial had two subsidiaries: Sonoma Financial Corp., a wholly owned real estate investment business, and Teachers Management & Investment Corp., a 75% owned investment company running limited partnerships largely restricted to educators.
It also had a construction unit, Piambo Corp., that may have been sold.
Centennial’s high expenses, which the FHLBB says contributed to its downfall, were perhaps the most spectacular of its shortcomings, but its more traditional troubles were substantial as well, according to information released by federal regulators.
High-Risk Investments
In its statement, the FHLBB attributed Centennial’s operating losses “in large part, to a low return on high-risk investments” in subsidiaries, real estate ventures and construction loans.
As of March 31, the FHLBB said, Centennial had invested $132.1 million, or 38% of its assets, in subsidiaries, and fully 40% of Centennial’s loan portfolio consisted of construction loans, “many of which were made on the basis of inadequate appraisals and other substandard underwriting practices,” the FHLBB said.
Federal regulators also said they had uncovered “numerous violations of federal regulations, including violations of the limit on loans to one borrower.” But the FHLBB did not disclose who the borrowers might be or the nature of any other infractions.
