Will Open Again Today Under New Federal Charter : Perpetual S&L; Declared Insolvent, Seized by Regulators
Burdened by a major money-losing real estate venture, overvalued securities and internal turmoil, Perpetual Savings Bank was declared insolvent and seized Wednesday by state and federal regulators, who funneled its assets into a new savings and loan.
Perpetual Savings Assn., the new federally chartered S&L;, will open for business as usual this morning at its two offices--one at its headquarters in Santa Ana and the other near Los Angeles International Airport.
All deposits will remain insured up to $100,000 per account by the Federal Savings and Loan Insurance Corp., which is handling the dismantling of the 3-year-old state-chartered institution and the operation of the new S&L.;
Perpetual, with assets of $61.9 million at the end of January, was the second S&L; in Orange County to be closed by regulators this year, and the sixth in the last 15 months.
Regulators said the S&L; had 1,839 accounts with total deposits of $58.4 million when it was seized. Most of the deposits had been placed by professional money brokers, however.
The Federal Home Loan Bank Board, which operates the FSLIC, hired a management team from Great American First Savings Bank in San Diego to manage the new association.
The bank board said in a statement that it placed Perpetual in receivership because it was insolvent and had dissipated its assets and earnings through unsafe and unsound practices.
Speculative Investment
The board said Perpetual’s insolvency was the result of losses on a major securities transaction and on a speculative real estate investment that was not supported by an appraisal. The association financed these investments to a large extent with high-cost brokered and jumbo certificates of deposit, the board said. About two-thirds of Perpetual’s total deposits were in brokered or jumbo certificates, regulators said.
At the end of September, Perpetual had a net worth of $1.8 million, but it has since fallen into a negative net worth position, said Douglas Green, a bank board spokesman. Through the first nine months of last year, the S&L; made $4,000.
It was expecting a $245,000 profit for the year, but regulators forced it to write down about $1 million because of its purchase of overvalued stock in a firm called Ruby Metal Mining Co.
The S&L;’s biggest problem, however, was a vacant parcel it owned on Melrose Avenue near Doheny Drive in Los Angeles, Green said.
The institution’s major stockholder and former chairman, Paul H. Morady of Beverly Hills, was trying to develop a high-rise hotel on the site, according to S&L; industry sources. But that project never got off the ground.
One source familiar with the association’s financial condition said Perpetual had been carrying the land on its books at a value of $8 million but was losing $150,000 a month on the deal and had spent up to $16 million on the purchase price, debt service and related costs.
Regulators had ordered Perpetual to come up with about $3.2 million in new capital by Feb. 27. But the deadline was allowed to pass when officials of the S&L; said they had found an investor who would put about $3 million into the association, state regulators said.
That deal, however, never materialized.
Morady was forced out as chairman of the S&L; earlier this year and was replaced by the S&L;’s president, Thomas L. Flores.
Morady, who fled Iran with his parents when the late Shah was deposed in 1978, recently tried to have Flores fired, sources said, but regulators prevented the action.
Morady, Flores and their attorneys could not be reached for comment Wednesday.
The new Perpetual Savings Assn. will be directed by a five-member board approved by the Federal Home Loan Bank Board. The chairman will be Dallis E. Widick Jr., who is currently serving on the board of directors of Ramona Savings & Loan Assn.
Heading the management team named by the bank board are John Faires, first vice president of Great American, and Ruth E. Dillon, a Great American senior vice president. Faires will be Perpetual’s chief executive officer and Dillon its chief operating officer.
