Depositors Flee Universal After State Takeover : S&L;’s Parent Company Suffers Withdrawals Too

Since state regulators’ seized Universal Savings & Loan Assn. in Orange two weeks ago, depositors have pulled about $3 million out of the S&L;, its former chairman said Wednesday.

In an interview after a court hearing, Christopher P. Blaxland, the suspended chairman of Universal and a director of its Australian owner, Unity Group Ltd. of Sydney, said the state’s decision to take control of the healthy S&L; because of concerns about its parent company made “front page news in the Australian financial press. . . . The whole thing has international ramifications of a most serious nature.”

Blaxland said Unity’s trust management group in Australia, which manages about 500 million Australian dollars for clients, also has suffered because “some clients have been advised to withdraw their funds.”

“And, some of our traditional and major banking relationships (in Australia) are threatened,” Blaxland said.

Universal’s attorneys contend that the state’s unprecedented action damaged a healthy savings and loan.

The state savings and loan commissioner obtained a court order June 16 enabling it to seize control of the profitable and solvent S&L; and place it into conservatorship because of allegations that funds from the Orange County financial institution were about to be diverted to Universal’s parent, Unity, to help it recover from debt incurred in an unsuccessful acquisition bid.

3 Employees Suspended

The decision to seize Universal was based in part on allegations by a former S&L; director, Christopher Gadsby, who resigned from Universal’s board June 14 amid an internal investigation of questionable commercial lending practices, Blaxland said. After the internal inquiry, three division employees were suspended.

So far, no specific allegations against Universal have been revealed because the documents in the case still are sealed under a court order obtained by the state.

But Los Angeles Superior Court Judge Christian E. Markey Jr. ruled Wednesday that court hearings on Unity’s suit to overturn the seizure of its S&L; will be open to the press and public.

“I would just as soon let the sun shine in,” Markey said.

Attorneys for the Los Angeles Times asked Markey to open the hearings to the public after the press and public were barred from two previous sessions and all documents pertaining to the case were sealed. A separate hearing would be necessary to consider opening the documents to public scrutiny.

Mark P. Richelson, a deputy attorney general representing the savings and loan commissioner, said he was concerned about “divulging intimate details of the institution” in open court.

However, Harry S. Stahl, Universal’s corporate counsel, said the investigation involves “nine business transactions to allegedly divert funds” from the S&L; to the parent company in Australia. He said that the state’s allegations are “unsubstantiated” and that no money was actually diverted.

“We firmly believe we have done nothing wrong,” said Robert K. Wrede, an outside attorney for Universal and its parent company. “In fact, any damage being done is by the state.”

Wrede blamed the state’s actions on “acute xenophobia.” He said a review in mid-May by the Federal Home Loan Bank Board and the state gave Universal “a clean bill of health.”

At the end of 1986, Universal reported assets of $308 million and net worth of $12.5 million. Unity acquired Universal for $10.2 million in December, 1986, after 10 months of state and federal regulatory review.

The purchase was Unity’s first acquisition of a U.S. financial institution, Blaxland said.