Costa Mesa S&L; Insolvent, FHLBB Rules : American Diversified State’s 3rd Failure of Year
Controversial American Diversified Savings Bank was declared insolvent and seized Friday evening by the Federal Home Loan Bank Board, making it the third California savings and loan and the sixth nationally to fail so far this year.
The Costa Mesa-based association, long an irritant to regulatory officials because of its wide-ranging investments in commercial real estate, apartments, hotels and alternative energy sources, had $977 million in assets but only a single savings office, located in the Central California city of Lodi. The rest of its operations, including several real estate subsidiaries, occupied three floors of a high-rise near the South Coast Plaza shopping center.
A spokesman for the bank board said Friday that Pacific Savings Bank, also of Costa Mesa, has agreed to operate American Diversified under a management contract. Because the S&L; is not being liquidated, it will continue operating under the same name and depositors will not be affected.
Few of American Diversified’s depositors, however, are retail customers. Only $22 million of the S&L;’s $893 million in deposits were placed by customers living near the Lodi savings office. The rest, the bank board spokesman said, were placed by professional money brokers on behalf of investment clients.
Prompted by Audit
The spokesman said Friday’s seizure was prompted by a just-completed bank board audit of American Diversified. Examiners reportedly found that many of the S&L;’s loans were based on “inadequate or inflated appraisals. Reappraisals (by FHLB-appointed appraisers) indicate there will be losses in excess of $23 million on these loans alone.”
Additionally, the spokesman said, American Diversified failed to file required reports with state and federal authorities “in timely manner,” and failed to establish loan loss reserves required by regulators.
The bank board has not yet released American Diversified’s 1985 financial report, but the S&L;, founded as Tokay Savings & Loan Assn. in Lodi in 1980 and purchased by Ranbir Sahni in mid-1983, confirmed two weeks ago that it had lost $2.2 million in its third quarter and had laid off 85 employees nationwide, about 6% of its total work force.
Sahni, who owns 96% of the S&L;’s stock and is chairman of the company, and American Diversified President Lester Day, who owns the remaining 4%, have been terminated as officers of the company but will remain as directors and shareholders, the bank board spokesman said.
