Hermosa’s Deposits at Insolvent S & Ls Fully Insured

The City of Hermosa Beach will be reimbursed for the nearly $200,000 it had deposited in accounts at two Orange County savings and loan firms that were declared insolvent and closed by the federal government, city officials said this week.

The reimbursements are part of a record $1.35 billion being returned by the Federal Savings & Loan Insurance Corp. to depositors with accounts in the two firms, American Diversified Savings Bank and North America Savings & Loan, both of Costa Mesa.

City Treasurer Gary Brutsch said the city will not lose any money from its investments of $99,000 in each of the firms because the accounts were insured by the FSLIC for up to $100,000 each.

“There was absolutely no risk,” Brutsch said of the decision to make the investments, which were in certificates of deposit. “CDs that are federally insured are absolutely the safest investments you can have.” The city has such certificates in a number of other financial institutions, he said.

Mayor Etta Simpson said the City Council considers safety most important when making investments, with liquidity and yield being secondary concerns.

“These two accounts were made relatively recently, and it somewhat concerns me that evidently the two institutions were taken over by the government at the time these investments were made,” Simpson said.

Brutsch said it was irrelevant that the banks were in federal receivership when the city invested in the certificates of deposit, since the money was always fully guaranteed by the federal government.

Councilman Roger Creighton also questioned the city’s investments in the banks, saying the city would get no interest between Monday--when the FSLIC liquidated the accounts and cut the checks for the city--and when the checks could be deposited in another bank. He also said it was unseemly for the city to benefit at taxpayers’ expense.

The two firms, which were seized by the government in 1986 and 1987 and closed Monday, had been paying interest rates about 1.5% higher than the national average of 7.08% to attract customers.

The city received two telegrams Tuesday from the FSLIC in Washington that Hermosa Beach would receive checks for the amount of the city’s investments in each account, including principal and interest, Brutsch said.

Brutsch and City Manager Kevin Northcraft had reassured council members Tuesday that the city would receive the checks from the FSLIC by next week, Simpson said.