Despite Ongoing Woes, FCA’s Chief Is Firmly in Charge

If William J. Popejoy’s job as chief executive of Financial Corp. of America is in jeopardy, it is not apparent from the comments of the people who set his business agenda and pay his $524,000 annual salary.

“We have a lot of confidence and faith in Bill Popejoy,” said Roger Martin, one of three members of the Federal Home Loan Bank Board, the nation’s primary regulatory agency for savings and loan firms.

“In my opinion, the (FCA) board is 100% supportive of him,” added Robert M. Barton, a Newport Beach lawyer and one of seven outside directors who include UCLA Chancellor Charles E. Young and Lawrence K. Roos, former president of the Federal Reserve Bank of St. Louis.

Popejoy’s performance at Irvine-based FCA, parent firm of American Savings & Loan, is topical once again in the aftermath of the $468-million loss for 1987 that the financial institution reported late last month.

The cascade of red ink rendered American Savings technically insolvent, meaning that its liabilities now outnumber its assets. In other words, the institution would be unable to pay off all its depositors and creditors if it were closed and all its loans liquidated.

The losses have rekindled an old debate about whether Popejoy has the executive savoir faire to turn around the behemoth financial institution. American Savings, which has nearly $34 billion in assets, easily remains the largest problem facing the savings and loan industry today.

The massive losses graphically illustrate how the financial condition of American Savings has deteriorated in recent months, despite the efforts of Popejoy, who is in his fourth year as chief executive. The year-end results included large operating losses as well as massive reinforcements for loan-loss reserves.

“I was shocked at how poor their year-end figures were,” said Prudential-Bache securities analyst Jerome I. Baron, a longtime company watcher.

Blames Troubles on Knapp

Popejoy appears increasingly frustrated with his post, although he says he is more determined than ever to stay. Independently wealthy and a resident of Newport Beach, Popejoy insists that he will leave only if his directors or the Federal Home Loan Bank Board wants him to resign.

Popejoy and his supporters continue to blame their current woes on past loans made by the management team led by Charles W. Knapp, whom federal regulators forced to resign in the summer of 1984. FCA has added $1.7 billion to loan-loss reserves since Knapp left the chief executive’s job, including a $236-million addition in the last three months of 1987.

“You can’t fault Popejoy,” said Anthony M. Frank, a banking executive from San Francisco who just accepted an appointment as U.S. postmaster general. “He’s not part of the problem.”

But Knapp, in a counterattack that broke a long silence, said in an interview last week that he is fed up with being blamed for the ills of a firm that he left 42 months ago. Knapp charged that bad management under Popejoy has allowed delinquent loans to go uncollected and foreclosed property to become neglected.

“We are tired of continually being management’s scapegoat for their own inabilities and inefficiencies,” Knapp, now a Los Angeles investment banker, said in a sharply worded statement.

Knapp, who resigned only after FCA’s directors gave him a $2-million severance payment, added: “The problems of the company are solvable, but we do not believe the current management has exhibited the ability to function effectively in reaching for resolutions. At this point in time, strong leadership and a strong organization is required.”

Knapp is not alone in his critique.

Financial analysts say FCA’s recent corporate strategies have only made the company more vulnerable to losses from rising interest rates, while shareholders are angry that the stock is trading at less than $2 a share.

Competitors continue to grouse among themselves that Popejoy’s controversial decision to increase the company’s assets by 25% in late 1986 has made American Savings an even greater liability to the Federal Savings and Loan Insurance Corp. should it fail. FSLIC is the industry-funded arm of the Federal Home Loan Bank Board that insures customer deposits up to $100,000 and pays the costs when a savings and loan fails.

A Greater Liability

FCA borrowed heavily from Wall Street investment banking houses to amass an $18-billion pool of mortgage-backed securities. But American Savings now faces large potential losses on these securities because rising interest rates have depressed their value. The losses would be realized if American Savings has to sell the securities.

The controversial growth strategy was approved by Edwin J. Gray, then chairman of the Federal Home Loan Bank Board. The regulators “really allowed Bill to bet the store, and the store here is FSLIC,” said one former member of the bank board. Gray, now a savings and loan executive in south Florida, could not be reached for comment.

Popejoy has also consistently misjudged the severity of American Savings’ problems, critics believe. In one case after he took over from Knapp, Popejoy publicly underestimated FCA’s eventual losses in the fourth quarter of 1984 by about $400 million.

“He has continually been too optimistic in his outlook,” said Baron, the Prudential-Bache securities analyst. “The guy has rose-colored glasses on.”

Dodging Icebergs

Even some Popejoy stalwarts have trouble being optimistic. San Diego real estate consultant Sanford Goodkin likened American Savings to a glamorous ocean liner that has turned into a tramp steamer and is now trying to navigate a field of icebergs.

“It just misses one iceberg, but another one is out there not too far away,” Goodkin said.

Others say American Savings is doomed to drift until regulators arrive at a formula for solving its woes. “They should have closed it up years ago,” fumed one former executive at the Federal Home Loan Bank of San Francisco. “It’s getting worse.”

One question that looms large is the so-called comfort letter that has been issued by the Federal Home Loan Bank Board each of the past two years. The letter stated that regulators would not take action against American Savings based on its inadequate capital levels.

But the letter is due to expire at the end of March, and many are wondering nervously what the bank board will do next. The ranks of the jumpy include investment banks on Wall Street, whose loans financed the mortgage-security acquisitions, and some members of FCA’s board of directors.

“We’d like to have something like that again this year,” said Barton, the Newport Beach lawyer who is an FCA director. “I’m personally apprehensive because I don’t know what the regulators have in mind. . . . You don’t wait until the last minute on these kinds of things.” The bank board said the issue is under review.

All of this, of course, makes Popejoy’s job hardly easy. He continually treads a crooked path between the demands of Wall Street, Main Street, the government and the press.

Inspires Strong Loyalty

Popejoy is a disarmingly candid executive who remains boyishly handsome even as he approaches age 50. He inspires intense loyalty among his senior staff and generates a personal respect even among those, like Knapp, who do not think that he’s equal to the job.

Popejoy has “a lot of Eagle Scout in him,” Barton said. “He has a high sense of honor and responsibility. . . . He has managed to hold the company together when all we saw was surprise after surprise because of the sins of the past.”

Popejoy does have a volcanic temper, which has been known to erupt if a reporter’s questions rub him the wrong way. The tantrums, though, usually pass like a Hawaiian rain storm and are quickly forgotten.

Once a popular figure in the industry, Popejoy has largely withdrawn from his old circle of colleagues at other California thrifts. His actions have been sharply critiqued by top executives at these institutions.

“He has been wounded and has withdrawn from that old-boy network,” one company consultant said. “He has taken it personally.”

Interviews indicate that Popejoy is partly hamstrung by federal regulators, who have virtually had American Savings under a microscope since Knapp was ousted and have final say over all major company decisions.

He was obviously irritated in recent months when reports circulated that Ford Motor was poised to buy American Savings for $1 billion through a deal that was being negotiated by the Federal Home Loan Bank Board.

Popejoy found that he could not add much to the information mill because the bank board deliberately kept him in the dark--an arrangement that he complained made him look like a “eunuch.”

“How would you feel if you had to read in the newspaper in the morning that your company is being sold?” asked Merrill Butler, a senior executive at American Savings and a member of FCA’s board.

“In the final analysis, he must represent the stockholders and we must represent FSLIC and the government,” Federal Home Loan Bank Board member Martin explained. “That means--a lot of times--we can’t tell him things.”

(The talks between Ford Motor and the bank board eventually broke down. Meanwhile, on Friday, the chairman of the House Banking, Finance and Urban Affairs Committee, Fernand J. St Germain (D-R.I), announced an inquiry into the way the bank board has handled the FCA affair.)

Popejoy also maintains that regulators have complicated his job through “nit-picking demands” and damaged the firm through ill-advised edicts.

Back in 1984, when Gray was bank board chairman, federal regulators forced FCA to sell billions of dollars worth of assets--mainly mortgage-backed securities--because they were anxious to shrink FCA after Knapp was ousted. Regulators felt that American Savings had grown much too fast under his leadership.

But the sale’s timing proved unfortunate.

Company consultant David Smith estimated that FCA would have made as much as $500 million on these assets if it hadn’t had to sell them. The securities increased sharply in value in late 1984 when interest rates began to tumble. FCA now needs well over $1 billion in capital to bring it into compliance with federal regulatory standards.

Many Problem Loans

Popejoy says American Savings will get by if it gets a little help from its friends at FSLIC. American Savings has asked for a $1.5-billion loan assistance package from FSLIC that is designed to provide both capital and income. FSLIC has not responded to the proposal.

Popejoy also disputes those who, like Knapp, believe that management is poorly managing its troubled assets--mainly commercial real estate and condominiums in the Sun Belt. American Savings’ problems include $583 million worth of loans at least three months delinquent and another $532 million worth of foreclosed property.

The company’s property liquidation arm, known as the American Real Estate Group and headed by Merrill Butler, has sold $1.4 billion worth of real estate since the beginning of 1985, including 6,700 parcels of property in 1987.

FCA has also stabilized American Savings’ deposits by switching the emphasis to insured savings--those up to $100,000--at the expense of large uninsured deposits that were favored by Knapp and his managers.

Thus, while bad earnings news at American Savings sparked large withdrawals while Knapp was chief executive, the recent announcement about 1987’s loss caused barely a ripple in American Savings’ $16.9-billion deposit base.

“We are down about $180 million,” Popejoy said last week. “Hell, we used to lose four times that much in one day.” (American Savings lost nearly $7 billion in deposits in the third quarter of 1984 during the zenith of the management turmoil surrounding Knapp.)

Despite the gains, some believe that the unrelenting force of conflicting pressures has transformed Popejoy into a battle-weary figure who no longer sees the forest for the trees. “Maybe someone new coming in could take a fresh look at things,” suggested one West Coast financial analyst.

But the image galls Popejoy, who says: “I’m a lot of things, but tired isn’t one of them. I’m just getting my second wind.”