THE SALE OF AMERICAN SAVINGS : American’s Sale a New Chapter in 5-Year Drama : Complex Negotiations, Slighted Suitors, Maligned Regulators All Played Role

After days, months and even years of frustration, the regulatory effort to solve the problems of American Savings & Loan Assn. has taken a giant leap forward.

Federal regulators said Monday that a near-agreement has been reached to sell American Savings, the operating subsidiary of Financial Corp. of America in Irvine, to private investors led by Texas billionaire Robert M. Bass. Under the proposal, the Bass group will invest $550 million to acquire the S&L; and will receive $2 billion in assistance from the Federal Savings and Loan Insurance Corp.

The agreement, which still requires various regulatory and legislative OKs, promises to conclude a long-running public spectacle in which the country’s second-biggest thrift--with assets of about $30 billion--lay fatally wounded but would not die because banking regulators did not have the financial resources to pull the plug.

Hammered by repeated deposit runs and mounting losses from bad loans, American Savings officially ran out of capital at the end of last year. Losses further accelerated in 1988, turning the once-proud company into a financial zombie. American Savings, with headquarters in Stockton, is the operating subsidiary of Financial Corp. of America, which is based in Irvine.

For years, American Savings has been the single largest problem facing thrift regulators, and their supervision of the company has drawn heavy flak from industry and government officials. Critics say regulators flubbed their supervision chiefly by periodically allowing the financial institution to grow much too fast.

The growth spawned billions of dollars’ worth of foreclosed loans and unprofitable mortgage securities that were the company’s eventual undoing. “This has been a massive failure of the regulatory system,” Herbert Sandler, head of the parent company of World Savings & Loan in Oakland, fumed in a telephone interview.

A look at the government’s handling of the FCA affair is a study of what happens when limited financial resources, bureaucratic turf wars and uneven regulation all intersect.

Operating behind the scenes, regulators controlled almost everything that happened at FCA and American Savings--from executive raises to growth rates--during the past four years. At the same time, there wasn’t enough money in FSLIC coffers to close the institution and pay off its depositors.

As a result, American Savings stayed open for business, but as an awkward hybrid. The company was owned by shareholders but controlled by bureaucrats, leading to clashes between the pressures of public policy with sensible business practices.

Iron Hold Established

The arrangement sparked continuing behind-the-scenes battles that spawned frustration at American Savings and division between federal regulators in California and Washington. As a result, American Savings’ size went up and down like a yo-yo according to what management was in place and which regulators were in charge.

Regulators gained their unusually strong control over American Savings in the summer of 1984 after forcing out the previous management during a deposit run. At the time, the Federal Home Loan Bank Board established an iron hold on the S&L; through written agreements with new management led by William J. Popejoy.

But the arrangement never worked smoothly. Fueled by personality conflicts and policy differences, tensions ran particularly high between senior executives of American Savings and their regulatory supervisors.

American Savings officials initially chafed at what they felt was imperious treatment by their immediate bosses in San Francisco. Popejoy complained that American Savings officials were treated like paper pushers and even crooks.

But Popejoy carried considerable clout with Edwin J. Gray, then chairman of the Federal Home Loan Bank Board in Washington, and he used that influence often during his battles with the Federal Home Loan Bank of San Francisco. It was with Gray’s blessing that Popejoy won approval to increase American Savings’ assets by 25% in 1986, a move that was bitterly criticized by industry insiders.

But even Gray and Popejoy eventually parted ways when it came to the future of American Savings. In early 1987, while Popejoy was still making hopeful comments about the company’s future, Gray had a gloomier view in what was a clear split between the businessman and the regulator.

“Bill was always looking on the bright side,” Gray said in a recent telephone interview. “It seemed to him like the company was making progress.”

Gray, though, thought that American Savings needed a new owner, and he hired a New York investment banking firm to find one. The move was a clear signal to the public that American Savings was so weakened financially that it could not survive on its own.

The search for a partner proved a frustrating affair. The lengthy negotiations on the Bass deal during the past few days veered from near certainty to near collapse and back again. Only some last-minute concessions on both sides prevented the deal from falling through, according to officials close to the talks.

Ford Talks Lengthy

At the same time, Ford Motor Co., a former suitor, re-entered the picture by saying it was still interested in buying American Savings if the Bass offer fell through. Officials at Ford’s First Nationwide Bank subsidiary openly criticized the bargaining procedure with Bass, saying an exclusive negotiating contract awarded the Bass investors prevented regulators from getting a top price for the company.

Ford’s own mating dance with the bank board went on for more than a year after the auto maker announced it was willing to put up as much as $1 billion in cash to recapitalize the thrift. After months of negotiations, regulators tentatively agreed to the deal. So sure was First Nationwide of a sale that it printed thousands of information kits to be given to American Savings employees once the sale was official.

A welcoming letter, written by First Nationwide President Robert E. Lackovic, began by stating: “As you know, through a recently approved acquisition, American Savings has become part of First Nationwide Bank.”

Paul Weinberg, First Nationwide’s acquisitions director, said: “This deal was done three or four times as far as we are concerned.” At one point, he recalled, the sale was derailed at the 11th hour by the stock market crash last October.

The crash drove down interest rates, which drove up the bond market. That increased the value of American Savings’ mortgage-backed bonds and led regulators to demand additional concessions in closing the sale, Weinberg and Lackovic said.

“I remember . . . flying back from Washington absolutely convinced we had a deal,” Weinberg recalled. ‘If the market hadn’t crashed, I think the deal would have gone through.”

But nothing alters the fact that Robert Bass now seems to be in firm control.

Though not much is known about Bass, the Texan’s point man in the negotiations has been Bernard J. Carl. Carl heads Castine Partners, an investment firm established by Bass last year as a way to enter the field of financial services.

‘Like Iran, Iraq’

A boyish-looking, long-haired racing-car enthusiast, Carl is also a well-established real estate attorney who once earned big money as a mortgage-security expert for Salomon Bros. Adversaries and associates alike say he is likable, patient and shrewd.

Those traits proved useful because Carl initially had to convince a highly skeptical bank board staff that a high-roller like Bass really was interested in buying American Savings. “The first two meetings they had, it was like Iran and Iraq, but Bernie kept boring away,” Popejoy said.

So successful was Carl that the bank board eventually agreed to negotiate exclusively with the Bass investors, thus cutting off any competing bid from Ford. Those exclusive negotiations began in April.

“They liked Bernie,” Popejoy said, referring the staff of the bank board. “He was responsive to them.”

Meanwhile, the First Nationwide executives never got over their anger over the exclusive contract.

“To negotiate exclusively, that’s crazy,” said Anthony M. Frank, First Nationwide’s former chief executive who recently became U.S. postmaster general.

The fact that Bass is from Texas--where the savings and loan industry remains in dire need of capital--only adds salt to the wound at First Nationwide. “Why doesn’t he rescue the savings and loans down there?” Lackovic asked.

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