FCA’s $1.5-Billion Bailout Plan Gets Lukewarm Reception
Reaction was lukewarm Thursday to a request by Financial Corp. of America and its American Savings & Loan subsidiary for a $1.5-billion bailout from the Federal Savings & Loan Insurance Corp.
Irvine-based FCA revealed the proposal as an apparent trial balloon on Wednesday, the day the firm released its year-end results, showing that it lost $468 million in 1987, including $225 million in the fourth quarter.
One of the largest quarterly and annual losses ever reported by a U.S. savings and loan company, the red ink wiped out the net worth of American Savings, whose nearly $34 billion in assets make it the nation’s biggest thrift.
Savings and loan regulators have not commented directly on FCA Chairman William J. Popejoy’s proposal, saying nothing formal has been presented. Popejoy has said he will submit a proposal if regulators give him a positive indication.
According to George Rutland, chief executive of California Federal Savings & Loan in Los Angeles, Popejoy’s proposal “should not be done unless there are severe restrictions placed on FCA’s operations.”
These limits, Rutland said, would force American Savings to make adjustable-rate mortgage loans on residential property only, and keep the giant banking company away from those commercial real estate development loans and mortgage-security investments that have caused it so much trouble in recent times.
But another savings and loan executive in the Midwest, who asked not to be identified, said Popejoy’s rescue idea is worth considering.
“It raises a legitimate question and that is: ‘What is the cheapest way for FSLIC to solve this problem?’ ” he said. “Maybe this is the best of the evils.”
FSLIC is an industry-funded government agency that insures S&L; deposits up to $100,000 and takes over when a savings and loan becomes insolvent. It also incurs heavy expenses if it has to close an insolvent institution and pay off depositors or merge it with a healthy financial institution.
Popejoy proposed the rescue idea in the firm’s earnings statement, saying the company could nurse itself back to health within three to five years if it were able to obtain a $1.5-billion assistance package from FSLIC. Popejoy likened the proposal to the successful government rescue of Chrysler Corp. nearly 10 years ago.
One regulatory official, who asked not to be identified, termed the idea “a masterful (public relations) job” because it shifted the focus away from FCA’s poor earnings and onto FSLIC, an arm of the Federal Home Loan Bank Board.
“I gather the Bank Board was rather astonished to see that in the press release,” noted Anthony Frank, chairman of First Nationwide Bank in San Francisco.
First Nationwide Bank is a subsidiary of Ford Motor Co, which had been negotiating with the Bank Board to acquire American Savings. But the talks broke off abruptly three weeks ago, in part over the issue of what protection FSLIC would provide Ford Motor to insulate the auto company from future losses at American Savings.
American Savings’ problems have a wide following in Congress, where a $10.8-billion bailout package was approved last year for FSLIC--which itself was declared insolvent at the end of 1986.
One congressional staff member called FCA “a subject of almost constant discussion” on Capitol Hill, but said solutions are scarce because “the cost (of closing American Savings) is so exorbitant. We don’t have the money.” (The cost of solving American Savings’ problems has been estimated as high as $4.5 billion.)
FCA’s problems are considered more pressing even than those in Texas, where a large portion of that’s state S&L; industry is mired in insolvency.
FCA is “such a big item,” the staffer said. “If you can get rid of it, the heat’s off.”
Times Staff Writer David Lauter in Washington contributed to this story.
