Charles Kenworthy said he received an unusual call several weeks ago from the Encino branch manager of Downey Savings & Loan.
“They said they had too many large deposits at the branch and wanted me to take mine to another bank or savings and loan,” said Kenworthy, an Encino resident who has had a certificate of deposit at Downey for nearly a decade.
Kenworthy’s money turned out to be part of $15 million in deposits that Newport Beach-based Downey gave back in one day to depositors to take elsewhere. The action was taken to help ease negotiations with federal regulators for Downey’s eventual purchase of the insolvent Butterfield Savings & Loan, said Maurice L. McAlister, Downey’s president.
Regulators don’t like to see too many accounts with $80,000 to $100,000 certificates of deposit because they believe that S&Ls; pay too high of an interest rate for them and that depositors are quick to switch their money to higher-paying accounts at other S&Ls.;
As an insolvent institution, Butterfield was paying among the highest rates for its jumbo CDs--which accounted for nearly all of its $628 million in deposits at the end of June.
Downey, knowing it was going to take in all those deposits, decided on its one-day business plan to lower the amount of jumbo CDs before it got a huge infusion of them.
“But it turns out we didn’t need to do that,” McAlister said. “So we called everybody up, and most of them brought their deposits back.”
The higher rates at Butterfield, he said, will continue to be paid only on existing accounts and only until those accounts mature. Rates otherwise will be priced at “market” levels, he said.