Regulators Taking Over Today; Downey Lined Up as Buyer : Sale of Butterfield Savings Imminent--Memo

Federal regulators are expected to take over Butterfield Savings & Loan in Santa Ana today to facilitate its sale to Downey Savings & Loan on Friday, according to an internal memo issued by Butterfield’s president.

The Federal Savings and Loan Insurance Corp. will take charge of Butterfield at about 3:45 this afternoon, according to the memo distributed to employees Wednesday by Anne Bacon, the S&L;’s president. Bacon would not comment on the memo, a copy of which was obtained by The Times.

Federal regulators acknowledged that the deal with Downey S&L;, based in Newport Beach, was imminent but declined to provide details. Downey Savings executives also would not comment Wednesday, except to say that talks with FSLIC were continuing.

The long-expected purchase of Butterfield by Downey would end yearlong negotiations between regulators and Downey executives.

FSLIC declared Butterfield insolvent in August, 1985, removed its management and placed it in its so-called management consignment program, retaining Downey to operate it. In January, 1987, FSLIC named Bacon--a Downey executive--to act as Butterfield’s president.

As in past mergers involving insolvent S&Ls;, FSLIC is expected to continue insuring deposits up to $100,000 per account. Butterfield, Bacon wrote in the memo, will likely become a wholly owned subsidiary of Downey, “providing, of course, the deal proceeds as planned.”

Bacon’s memo gave no details of the terms of the federal takeover, but Downey is expected to receive a large amount of money from FSLIC--through notes, cash or a combination of the two--to erase Butterfield’s deficit, which stood at $132.8 million at the end of June.

The memo said the FSLIC, which has been the receiver for Butterfield since the 1985 takeover, will put Butterfield into a “pass-through” receivership, which will enable the agency to “retain certain liabilities, while passing through substantially all of the assets and liabilities” to Downey.

As of Tuesday night, according to Bacon’s memo, regulators planned to merge Butterfield into Downey the same way they are selling American Savings & Loan to the Bass Group in Texas.

Downey figures it can use the wealth of tax credits built up by Butterfield’s five years of losses.

And Downey’s expertise in real estate may help solve the biggest problems at Butterfield: the over-valued and under-earning properties it owns.

At the end of June, Butterfield had $561.7 million in assets, and Downey had $3.2 billion.