New York Firm Agrees to Acquire Troubled Western Empire Savings

Western Empire Savings & Loan, ailing from continuing losses, has reached a tentative agreement to be acquired by an investment banking firm in New York City.

The purchase price has not been discussed yet, but the agreement would provide for a capital infusion of more than $5 million, said Charles W. Terrill, chief operating officer of the Irvine thrift.

The new capital is needed because the S&L;’s assets slipped below its liabilities during the second quarter, Terrill said. Quarterly figures aren’t ready for release yet, but the deficit is less than $1 million, he said.

The name of the New York firm is not being disclosed yet, but it is not a major Wall Street firm, Terrill said. Executives at the firm already have met with federal regulators about the possible purchase, he said.

“The firm has substantial capital and the ability to raise more,” he said. “The savings and loan would remain as Western Empire, and they have indicated, though they haven’t said anything definite, that it would continue to operate with the same management.”

A few major commercial real estate loans made by prior managers have caused the S&L; to post $4.3 million in losses in the past 18 months and its net worth to evaporate. Terrill termed the loans “too aggressive,” though they might have looked good at the time. The loans are among 70 major commercial loans the thrift made.

Western Empire, which had about $120 million in assets at the end of June, expects to recover $1 million to $1.4 million from collections on the troubled loans, some of which are tied up in bankruptcies, he said. The recoveries would give the S&L; a tiny but positive net worth.

In late 1985, Robert Margolis was brought in as president of Western Empire, and the S&L; began changing its loan portfolio to single-family mortgages. Such loans make up 75% of the portfolio, and only one is delinquent, Terrill said.