Advertisement

Sale of Santa Ana Thrift : Deal Delivers Butterfield to Downey S

Share
Times Staff Writer

With $281.1 million in federal assistance, Downey Savings & Loan today will take over the operations of troubled Butterfield Savings & Loan in Santa Ana, one of the biggest insolvent thrifts still in business.

The deal, reached late Thursday, ends a year of often-frustrating talks between Downey and federal regulators and returns Butterfield to solvency with an additional $40 million of capital injected by Downey.

Butterfield will reopen today as a subsidiary of the Newport Beach-based Downey.

While some of Butterfield’s 140 employees are expected to be laid off, Downey plans to keep most of the employees working in Butterfield’s branches in Santa Ana and Bakersfield and its consumer-loan production office in Brea, said John Dennis, a Downey spokesman.

Advertisement

Layoff Decision ‘in the Next Week or So’

“We’ll figure out in the next week or so how many will stay,” Dennis said.

Anne Bacon, Butterfield’s president, will remain for two months to aid the transition, he said.

Downey will evaluate the need for each office and decide at some point whether to merge one or all of them into existing Downey operations.

The sale removes Butterfield from the list of insolvent institutions plaguing the Federal Home Loan Bank Board and its insurance unit, the Federal Savings & Loan Insurance Corp.

The bank board and FSLIC, which regulate S & Ls, have sold or liquidated 116 insolvent institutions this year. Still, 400 of the industry’s nearly 3,100 institutions are insolvent or close to it.

The bank board declared Butterfield insolvent in August, 1985, removed its officers and placed it in the government’s management consignment program, retaining Downey to operate it. In January, 1987, FSLIC, as receiver, named Bacon as Butterfield’s president.

At the end of July, Butterfield had $541.3 million in assets and a deficit--assets minus liabilities--of $132.7 million, according to the bank board.

Advertisement

Under the agreement approved by the bank board late Thursday, FSLIC will provide a $238-million note, payable over 10 years, to erase Butterfield’s negative net worth. Downey will add $40 million in new capital to give the S & L more than twice the net worth regulators normally require.

Downey to Be Reimbursed

FSLIC also will provide $43.1 million more to cover any loss of capital and to maintain the interest rate yield on certain assets Downey is acquiring.

In addition, Downey will be reimbursed for losses that may be caused by certain poorly performing assets it is acquiring. The bank board would not identify those assets.

Downey, with $3.2 billion in assets, also will get all the tax benefits resulting from operational losses that Butterfield has accumulated over the past five years. FSLIC will keep all tax benefits resulting from other losses.

The total estimated cost to FSLIC from the deal is $281.1 million, or about 84% of the amount it would have cost the agency to liquidate Butterfield.

“This has been a grueling thing for negotiators, but its an important sale for FSLIC,” Downey spokesman Dennis said. “It shows the progress FSLIC has made in recent months to help cleanse the industry of some of the poorer-performing thrifts.”

Advertisement

Employees at Butterfield’s two branches--Santa Ana and Bakersfield--said they are upbeat about their new owner.

For the past year, employee emotions have seesawed as the deal with Downey seemed ready to close, then ready to fall apart.

Ousted Operators Pleased

Butterfield’s former operators, ousted by regulators in the 1985 takeover, were also pleased with the sale.

“I see it as a positive,” said William Endresen, former chief executive. “I think Downey sees some substantially undervalued properties as well as the tax benefits. I think it’s favorable for them.”

As an example, FSLIC-run Butterfield sold 1,200 acres near Lake Elsinore for $4.5 million, he said. The buyers put the property in escrow before the deal was completed and eventually sold it for $13 million.

Endresen and his brother, former Butterfield president Donald W. Endresen, remain convinced that regulators ruined the institution by refusing to let it grow to a $1-billion enterprise and by curbing its activities.

Advertisement

The final act that wiped out the S & L’s capital and led to the takeover, they said, was a requirement to write down the value of the S & L’s investments in real estate.

“I spent a year and a half of my life being very bitter,” said Donald Endresen. “Now it’s a nonentity. Butterfield Savings & Loan doesn’t exist to me. It had an image of life and vitality. . . but now it’s a lethargic mess created by the folks at FSLIC.”

All Sorts of Investments

Under the Endresens, Butterfield was a fast-growing institution that took advantage of new state laws to get involved in investments of all kinds.

It bought two fast-food restaurant operations--a Wendy’s hamburger franchise and the Love’s Wood-Pit Barbecue chain. It started a securities operation and toll-free banking to acquire large deposits over the telephone. It also acquired an insurance company.

But the Endresens primarily wanted Butterfield to be known as a national real estate investment syndicator and wholesale mortgage banker. Donald Endresen devised an unusual plan to buy real estate with company stock, using the new equity to bolster the S & L’s sagging capital base.

But much of the property it bought was overvalued, and the S & L ended up in even worse shape, regulators said.

Advertisement

Under Downey and Bacon, Butterfield shed itself of the restaurants, much of the overvalued properties and 10 of its 11 subsidiaries and divisions. Its work force was cut from 1,200 to about 140.

BUTTERFIELD CHRONOLOGY

November, 1976--Donald W. Endresen, his father, David, and Daniel Kiernan form KEICO Investments in Fullerton with $1,500 in capital to buy run-down apartments and other properties and package them as investments. The name later changed to KECOR Financial Group.

April, 1981--Butterfield S & L in Temecula gets a state charter. KECOR acquires a substantial minority interest.

June, 1981--Butterfield opens. Donald Endresen is president and his younger brother, William, is chief executive officer.

April, 1982--KECOR changes its name to Butterfield Equities Corp.

July, 1982--Butterfield S & L buys Kern S & L in Bakersfield for about $350,000. The combined S & Ls have about $60 million in assets.

November, 1982--BEC completes $2-million initial public offering.

December, 1982--BEC buys a money-losing Wendy’s franchise, becoming the nation’s first S & L holding company to enter the fast-food business. The franchise operation later becomes part of the S & L.

Advertisement

June, 1983--Butterfield S & L merges into BEC.

September, 1983--BEC buys money-losing Love’s Wood Pit Barbecue restaurant chain for $2.9 million. It also becomes part of the S & L.

October, 1983--Butterfield pays $59 million for a real estate investment trust with $71.4 million in assets, in the S & L’s first significant direct real estate investment.

November, 1983--New state laws give California’s state-chartered S & Ls unlimited investment powers.

January, 1984--A real estate limited partnership, half owned by Butterfield Savings, buys 11 apartment complexes in Texas and Louisiana for $100 million.

February, 1984--BEC moves into a lavish, new, eight-story headquarters building in the Hutton Centre in Santa Ana. The S & L starts its own money desk, offering high interest rates to attract jumbo deposits of $100,000 or more from institutions.

May, 1984--BEC reveals a third-quarter loss of $3.8 million, blaming expansion moves and real estate losses. Its equity-to-assets ratio falls below the minimum required by regulators.

Advertisement

July, 1984:

Fiscal 1984 loss is $6.5 million. Assets are $677.3 million.

BEC acquires nearly $60 million in real estate to bolster the S & L’s sagging capital base.

BEC buys its headquarters and 2.86 acres of land in Hutton Centre for more than $26 million and says it has bought an insurance agency and will begin offering personal and business insurance.

October, 1984--Federal regulators, alarmed at growing losses, impose a stop-growth order, halting a plan that called for assets to climb more than $1.5 billion in the next 18 months.

November, 1984--BEC posts a first-quarter loss of $7.1 million. Total losses since August, 1983, hit $13.6 million. David Ross is named chief operating officer as part of major restructuring.

January, 1985--BEC lays off 80, about 33% of its staff in Santa Ana, after announcing a six-month loss of $15.8 million. Founding partner Kiernan leaves the company, taking its financial-planning unit with him.

April, 1985--The S & L begins closing some Love’s restaurants.

May, 1985--BEC posts a $5.5-million loss for the quarter ended March 31.

June, 1985--The S & L says it will sell two of its four branches. Regulators impose a supervisory agreement on S & L’s management, requiring federal approval of most business plans.

Advertisement

August, 1985--Alerted to BEC’s estimates of a huge fourth-quarter loss, the Securities and Exchange Commission halts trading in the company’s stock. BEC says it expects fourth-quarter losses to exceed $15 million. The fiscal 1985 loss is $36.3 million. Losses for the last two years top $42 million. On Aug. 7, Regulators seize Butterfield Savings, declare it insolvent and turn operations over to a management team from Downey S & L. The Endresens and 3,000 shareholders are left with BEC, a shell company.

October, 1986--Butterfield sells its Wendy’s restaurants and franchise territory for $4.2 million.

December, 1986--Love’s chain is sold for $1.2 million. Downey terminates contract to run Butterfield. Downey executive Anne Bacon quits to operate the insolvent S & L. BEC files for bankruptcy protection, listing $88 million in debts and no assets.

Advertisement