Investor Group to Buy Lincoln S&L; for $288.75 Million

The owner of Lincoln Savings & Loan agreed Tuesday to sell the Irvine savings institution to a Southern California investment group in a preferred stock transaction valued at $288.75 million.

The sale of the S&L; by American Continental Corp. in Phoenix would be likely to end three years of sometimes-bitter confrontations between company executives and federal regulators over the S&L;’s non-traditional business strategy.

State and federal regulators, however, must first approve the sale to a group headed by Spencer Scott, former chairman and chief executive of Fidelity Federal Savings & Loan in Glendale and its parent, Citadel Holding.

The group, which also includes Beverly Hills real estate investor Herman Rappaport, agreed to pump $50 million into the S&L.; If the sale is approved, Scott said, he will become chairman and chief executive of Lincoln and Rappaport will become vice chairman in charge of real estate activities.

Called ‘Excellent Deal’

American Continental, a real estate development company, has hinted for more than a year that it might like to sell Lincoln and get out of the savings and loan business.

“It’s a deal that’s excellent for both parties,” Charles H. Keating Jr., chairman of American Continental, said Tuesday after resting from late-night negotiations that resulted in the definitive purchase agreement at 1 a.m.

One industry analyst questioned whether the deal favors Keating and American Continental too much and leaves Lincoln in a weak condition. When Keating bought it four years ago, Lincoln was a troubled S&L.;

“If regulators let this go through, it’ll be a great deal for Keating,” said James M. Marks, an analyst at SNL Securities in Hoboken, N.J. “I imagine Lincoln is ultimately going to cost regulators tens of million of dollars. I think it’s in very bad financial shape.

Lincoln recorded a $20-million loss in the third quarter of this year as part of American Continental’s combined $36-million loss. Over nine months, however, Lincoln earned more than $5 million and the parent company showed a combined profit of $2 million.

Keating’s use of expanded powers for California-chartered savings institutions, particularly his direct investments in real estate projects, upset federal regulators, who viewed the investments as risky and the S&L; as a development company.

Lincoln was the subject of an unprecedented two-year audit, which ended last winter after Keating agreed to put $10 million of new capital into the S&L; and change more of its assets into less-risky home loans.

Keating would not say that his problems with regulators were the reason for the sale, but he acknowledged that he is glad to get out of the S&L; business. “We’re going to have a company with about $830 million in assets and operate in an environment where we can fully take advantage of our assets,” he said.

As part of the deal, he said, American Continental will buy three assets from Lincoln--assets that had come under the heaviest criticism from regulators.

American Continental will pay Lincoln $200 million over 10 years for the Phoenician resort and the Crescent Hotel, both in Phoenix, and related real estate in the area. It will also pay about $190 million over 10 years for the S&L;’s 20% stake in General Oriental Investments Ltd., an international investment firm based in the Cayman Islands, a British dependency in the Caribbean.

Good Branch Structure

Keating said Tuesday that the S&L; is profitable and in good shape. And Scott said he is confident that Lincoln will remain healthy and prosperous as his group changes it into a more traditional thrift operation.

“Lincoln has a very good branch structure,” Scott said. “And we have the opportunity to start off fresh with a traditional loan program. I intend to run it in the same fashion I ran Fidelity Federal.”

Scott said no decision has been made yet on whether the S&L;’s headquarters will remain in Irvine, though he said he himself does not want to commute to Orange County and is “not inclined to move there.” Lincoln has 29 branches, all in Southern California.

Three years ago, Scott was ousted from his posts at Fidelity and Citadel during a dispute over competing attempts by other S&Ls; to take over Citadel. Fidelity and Citadel both were profitable enterprises under Scott’s leadership.

For the last two years, Scott has been chairman and chief executive of Wilshire Savings, a small S&L; in Los Angeles.

Scott’s purchase of Lincoln, which has $6.8 billion in assets, would mark his return to leadership of one of the state’s 20 largest S&Ls.;