Family S&L; Hopes to Go Forward by Returning to Past
From a second-floor balcony inside Family Savings & Loan’s headquarters, Robert E. Bowdoin gazed down--seemingly with a sense of relief--on the empty teller windows in the quiet banking office.
Just nine months ago, jittery customers lined up outside Family Savings in Los Angeles’ Crenshaw district and withdrew about $3 million--a staggering amount for the tiny thrift--as reports about questionable loan practices surfaced.
The run forced Bowdoin, then Family Savings’ president, to quickly borrow about $4 million to make sure that the thrift had enough cash to get through the short-lived crisis.
Although deposits are starting to trickle back, Family Savings’ woes are not over. A federal investigation has already forced a management shake-up at Family Savings, the nation’s second-largest black-owned thrift and a one-time pillar of conservative banking.
The firm’s majority shareholder, real estate investor Oliver A. Trigg Jr., resigned last month as chairman and chief executive. Several members of Trigg’s management team have quit. Five of the company’s seven directors have resigned.
Trigg, under pressure from the Federal Home Loan Bank of San Francisco, has turned control of his shares over to a trustee.
After 15 years at Family Savings, Bowdoin now finds himself the new chief executive of the 40-year-old thrift as well as remaining its president. The task ahead of him is not an easy one.
Headed for New Era
He is trying to restore confidence in the institution at a time when it is losing money after earning record profits just two years ago. What is more, the FBI is investigating possible fraud that is believed to have taken place during Trigg’s tenure.
And there is no assurance that Bowdoin and the firm’s other top managers will remain if Trigg sells his shares. The former chairman is said to be in sale discussions with two separate investors.
Still, Bowdoin, a graying executive who chooses his words carefully, insists that the worst is over for Family Savings. “I like to think that we are going into a new era at Family Savings. . . . We will gradually work our way out of this total situation.”
In many ways, the new era at Family Savings marks a return to the conservative policies of its founder, El Monte hog farmer M. Earl Grant, who died in 1981. Grant eschewed large mortgage loans, automobile loans and other consumer lending, focusing on home mortgages.
Under Trigg, Family Savings did a dramatic about-face. Trigg pushed the thrift into consumer and business lending and endorsed loans for more than $2 million, believed to be the highest ever made by the thrift.
Trigg also aggressively led the company into real estate investment, including a controversial $5.2-million purchase of undeveloped land in Whittier that later attracted the attention of regulators.
Trigg’s strategy bolstered profits at Family Savings at first. The thrift reported a record profit of $1.56 million in 1986. But later, profits deteriorated as a $2.65-million loan soured, and Family Savings failed to sell the Whittier land quickly. Family Savings earned just $430,000 last year. During the first three months of this year, the thrift lost $150,000 and expects to lose more money in the second quarter, which ends June 30.
Needs Community Support
Under Bowdoin, Family Savings will make no real estate loans of more than $500,000 unless its board of directors approves. The thrift also will not make any more consumer loans, and plans to steer clear of real estate purchases. Before moving back into riskier areas, “we need to stabilize,” Bowdoin said.
With his conservative policies, Bowdoin hopes to regain the confidence of the black community, which has long supported Family Savings. Without that support, he said, Family Savings will have a hard time attracting deposits, the cheapest and most important source of funds for small S&Ls; like Family Savings. Its total assets were just $183 million at the end of last year.
Bowdoin and his colleagues have spent a good deal of time on the telephone, soothing anxious customers. The thrift is also exploring ways to polish its image in the community. For example, it recently initiated an anti-graffiti campaign in its neighborhood.
At the same time, Family Savings is making at least a symbolic effort to attract business from non-black customers. For the first time, its revamped board of directors includes one white and one Latino.
However, several of the new directors acknowledge that this gesture probably is not enough. To compete effectively with other institutions, Family Savings needs to expand beyond its two offices, in Los Angeles and Pasadena, and to provide automatic teller machines and other electronic consumer services that are staples at larger banks and S&Ls.;
“It’s the difference between bigness and smallness and it’s critical,” said William S. Shearer, president and chief executive of East West Broadcasting Co. and a new member of Family Savings’ board. Shearer observed that a Great Western Savings branch not far from Family Savings’ Crenshaw district office probably draws business away from the tiny thrift with electronic banking services and lots of advertising. “I’m not sure Family’s image is all that tarnished (by the recent investigations),” he says. “I think Family’s problem is that it has not made enough noise in the marketplace.”
Increasingly, there is a feeling that Family Savings needs to expand if it is to avoid becoming an anachronism in an age when blacks, as well as whites and Latinos, shop around for mortgages and do business with the bank or S&L; that offers the best deal--without much regard for the ethnicity of the institution’s owners.
“There is no single black community anymore,” said Sidney Harris, a management professor at the Peter F. Drucker Graduate Management Center in Claremont and another new Family Savings director. “Family has to change with the larger changes in the marketplace. It just can’t assume it has a role to play. It has to think through what that role is.”
Any big changes are years away at best. Bowdoin said Family Savings must first turn profitable and raise more capital--possibly through the sale of new stock--before it can consider a costly expansion into new services and branches.
For now, Bowdoin and his new board of directors are trying to sort out the legacy of Trigg’s administration. Trigg’s team at Family Savings has been dismantled. His sister, Wanda, who was his administrative assistant, is gone. Wayne C. Collett, a lawyer and 1972 Olympic silver medalist who worked closely with Trigg as a Family Savings vice president, quit to go into private law practice.
Channing D. Johnson, a long-time friend of Trigg’s who served as general counsel, said in an interview that he resigned at the request of the Federal Home Loan Bank of San Francisco. Federal regulators said it was a conflict of interest for Johnson, who previously had been Trigg’s attorney, to represent the thrift. Johnson said he disputed this but had agreed to resign.
Among the five directors who resigned or retired last week was Flora Grant, widow of the thrift’s founder. Besides Shearer and Harris, the new directors are Ivan J. Houston, chairman of Golden State Mutual Life Insurance Co., Art M. Gastelum, a Latino and an adviser to Mayor Tom Bradley, and Serge B. Woodruff, who is white and a former executive with Universal Savings Bank in Orange.
Foreclosing on Land
Soon, Trigg’s expensive company car will be gone as well. The thrift is selling Trigg’s $65,000 Mercedes 560 sedan, complete with customized sound system and telephone.
The company is also foreclosing on land in Fontana and Los Angeles owned by Trigg’s former business associate, Inglewood developer Willie A. Powell, who is behind on payments on his $2.65-million loan from Family Savings, Bowdoin said.
Family Savings is also trying to sell the undeveloped land in Whittier that it bought from Powell for $5.2 million, although the thrift does not expect to recover all that it paid for the property.
So far, none of the 13 parcels in the exclusive Whittier Friendly Hills Estates have been sold, although Bowdoin said the sales of three parcels are in escrow. (Earlier, Arthur H. Barens, a lawyer for Trigg, said in an interview that two parcels had been sold.)
It appears that Family Savings has been shielded from losses on the sale of the Whittier land, however. That is because Trigg, under pressure from federal regulators, has agreed to reimburse Family Savings for any losses that result from a sale, according to an informed source.
Meanwhile, the thrift’s new directors will soon receive copies of a 200-page report on an internal investigation by Beverly Hills lawyer Milton Feinerman. Family Savings hired him last fall after an article about some unusual transactions involving Family Savings appeared in The Times.
Though the details of the federal probe have not been disclosed, it is known that regulators raised questions about the loan to Powell and about the acquisition of the Whittier land. According to James R. DeBose, general counsel for Family Savings, Trigg did not disclose his relationship with Powell before the loans were made.
“All we knew was that Powell was introduced to Family by Trigg,” DeBose said. “He (Trigg) never said they were business partners and friends.”
Through Barens, his lawyer, Trigg has maintained that he did nothing wrong.
And, for his part, Powell said in a telephone interview that he is not making payments on the loan because he is not happy with the deal. Powell said that when he bought the property in Fontana and Los Angeles from Family Savings, he was supposed to get a joint venture stake in a project in Altadena.
“I’m not going to take the others without the crown jewel,” he said.
Powell’s lawyer, Bruce G. Landau, says his client is not fighting the foreclosure. He said Powell wants to rescind the deal and is negotiating with Family Savings to do that.
Bowdoin acknowledges that there is a dispute about the Altadena parcel but says the thrift is going ahead with its action against Powell. He says he is confident that when the controversy is resolved--and the Whittier property is sold--Family Savings will return to profitability, perhaps by the end of the year.
“This organization has been around for a long time and will be around for a long time,” he said.
