Lincoln Savings Settles Feud With Thrift Regulators
Lincoln Savings & Loan, the unorthodox financial institution in Irvine operated by Arizona real estate developer Charles H. Keating Jr., has settled a long-running dispute with thrift regulators by agreeing to raise up to $160 million in new capital, it was disclosed Sunday.
The settlement also has an unusual provision whereby regulation of Lincoln Savings has been taken away from the Federal Home Loan Bank Board of San Francisco, which normally supervises all federally insured thrifts in California. With $5.4 billion in assets, Lincoln Savings operates through a network of 27 branch offices in Southern California.
According to terms of the agreement disclosed by Keating, Lincoln Savings plans to buy a thrift outside the jurisdiction of the San Francisco Home Loan Bank. Supervision of Lincoln Savings would then be transferred to the district where the acquired thrift is located.
In the meantime, the company said, supervision of Lincoln Savings will be handled in Washington by the Federal Home Loan Bank Board, which confirmed that it would approve the transfer if no problems arise.
“We’re pleased to have this resolved,” a spokesman for the Bank Board said. Regulators in San Francisco could not be reached for comment.
Keating is chairman and controlling shareholder of American Continental, a real estate development firm in Phoenix that bought Lincoln Savings four years ago for $51 million. Under Keating’s direction, Lincoln Savings has grown rapidly and changed from a traditional residential mortgage lender into an aggressive real estate developer and heavy investor in high-yield “junk bonds.”
It particularly galled some thrift regulators that Lincoln Savings took deposits from savers in California and invested the money in development deals in Phoenix. Regulators also took issue with appraisals that Lincoln Savings had used to value its properties, company officials have confirmed.
The agreement ends a long and contentious examination of Lincoln Savings’ books that had begun in 1986. The company noted that the examination did not require Lincoln Savings to restate earlier earnings or increase loan-loss reserves, which now stand at about $50 million.
Until a new examination by the Bank Board is complete, Lincoln Savings may maintain its direct investments at current levels of $1.46 billion, company officials said. These include investments in hotel and residential developments in which Lincoln Savings has a direct interest.
‘Political Clout’
In continual combat with thrift regulators, Keating has defended Lincoln Savings and its investments through lawsuits and political pressure. In one instance last year, five U.S. Senators met with thrift regulators on Keating’s behalf to discuss why Lincoln Savings was undergoing such a long audit.
“I have never met a man with more political clout in my life,” a California thrift regulator told The Times earlier this year.
American Continental officials said they are happy with the new agreement. “I think we’re pleased the results came about the way they did,” said Robert J. Kielty, executive vice president of American Continental in a telephone interview. He declined to elaborate.
In his press release, Keating also said “the company is pleased that the matter has been thus resolved and we now can focus on operating our healthy and profitable financial institution.” He could not be reached for further comment.
The agreement requires Lincoln Savings to raise new funds even though its capital already equals a healthy 6% of assets, Kielty said.
According to the announcement, Lincoln Savings will raise $10 million in new capital by selling preferred stock to its parent company, American Continental. It will also raise up to $150 million through the sale of securities “for future growth,” the press release said.
