Repeat of 1984’s Run on FCA Not Believed Likely : Change in Deposit Mix and Awareness of FSLIC Cited

Although its latest fourth-quarter loss will not help confidence, Financial Corp. of America is not likely to suffer a repeat of the same massive deposit withdrawals that it did in 1984 when news of its financial woes first made headlines.

That is because the firm and its American Savings unit in recent years have sharply reduced dependence on large uninsured deposits from government treasuries, pension funds, corporations and other institutions that often withdraw money at the slightest hint of financial problems. Many of them said Wednesday that they pulled their money out of American Savings several years ago.

Furthermore, the thrift’s smaller depositors continue to be insured up to $100,000, and awareness among them of federal deposit insurance probably has grown since four years ago.

Also, many depositors may believe that the federal government would step in before allowing the nation’s largest savings and loan to fail.

Confidence in Management

Consequently, news on Wednesday of FCA’s $224.6-million loss in the fourth quarter--which gave it a negative net worth for the first time ever and sparked new concerns about its financial health--showed no evidence of immediately sparking a new spate of withdrawals, although FCA officials and regulators said they were closely monitoring the situation.

“We really have confidence in their management,” said California Savings and Loan Commissioner William Crawford, adding that he wasn’t aware of any withdrawal problems Wednesday.

“We felt no impact on deposits,” said William J. Popejoy, FCA chairman and chief executive, although adding that the firm will be watching for reaction today when news of its loss is more widely disseminated.

However, in an unusual warning to depositors, Popejoy added that “anybody who has over $100,000 in their account would be well advised to scale it back to $100,000.” That amount is the maximum per depositor insured against loss by the Federal Savings and Loan Insurance Corp.

The threat of a massive outflow of funds--a classic bank run--is not lost on the minds of FCA officials and savings and loan industry regulators.

Averted Largest Bank Failure

Thanks to a crisis of confidence brought on by worries about its massive problem loans and other financial woes, American Savings suffered a $6.84-billion deposit outflow in the third quarter of 1984, one of the severest deposit losses ever sustained by a U.S. financial institution. Of that amount, about $6 billion was institutional deposits.

A similar massive outflow of deposits that same year resulted in the massive government bailout of Continental Illinois, averting the largest bank failure in U.S. history. Like American Savings, Continental Illinois relied heavily then on uninsured deposits from big institutions.

But American Savings’ deposit situation is a lot different these days. By acquiring dozens of branches from other S&Ls;, American Savings has increased the percentage of its deposits from ordinary consumers, who are more likely to be fully insured and thus less likely to flee at signs of trouble.

American Savings also is less aggressive than in 1984 in offering high rates for large certificates of deposit, and thus less prone to withdrawals from depositors who move massive sums of money around quickly to the highest-yielding banks or S&Ls.; For awhile in 1984, American Savings offered the nation’s highest rates on jumbo CDs over $100,000, but now it rarely makes the lists of top-paying institutions, said Robert K. Heady, editor of 100 Highest Yields, a North Palm Beach, Fla., newsletter that tracks savings rates.

Accordingly, only about $1.67 billion, or 10%, of American Savings’ $16.9 billion in deposits derives from institutions with deposits of more than $100,000, FCA spokeswoman Layna Browdy said. That is down sharply from over 50% from institutional funds before August, 1984, at the peak of the firm’s deposit outflow.

Popejoy said further that only $400 million of the $1.67 billion in institutional money is actually uninsured. Much of the remainder is from pension funds that are eligible for $100,000 in insurance for each vested member. (Many pension funds contend, however, that this rule has never been fully tested and thus is unreliable in practice.)

Many pension funds and state and local governments said Wednesday that they no longer deposit funds at American Savings because of its weakened financial condition.

“We haven’t had anything since their first problems,” said George Jeffries, chief investment officer of Los Angeles County.

Ken Cramer, California’s assistant treasurer, said the state is down to less than $100,000 at American Savings from more than $100 million in 1984. “They haven’t been as aggressive in their rates,” Cramer said, adding that high rates “were part of their problem in the past.”

Sacramento County Treasurer John Dark said his agency will only deposit funds with banks and S&Ls; ranked “B” or higher by a major rating firm.

“Those guys (American) are a long way from a B,” Dark said, adding: “There’s no point in taking a credit risk.”

Times staff writer Tom Furlong contributed to this story.