7 More S&L; Deals End Bailout Surge : Beverly Hills Savings Bought by Bank in Michigan; U.S. Puts Up $983 Million
The controversial flurry of 11th-hour savings and loan bailouts for 1988 came to an end Saturday night as regulators in Washington completed seven additional forced mergers, including the sale of Beverly Hills Savings & Loan to a commercial banking company in Michigan.
Michigan National Corp., the state’s fourth-largest banking company, took over Beverly Hills Savings by putting $52 million in new capital into the long-troubled financial institution. Thrift regulators provided an assistance package of $983 million.
In other deals, Home Federal Savings & Loan in San Diego took over three insolvent thrifts in the San Francisco Bay Area, while California Federal Savings & Loan in Los Angeles acquired one of Florida’s sickest thrifts, Broward Federal Savings & Loan. Los Angeles-based First Network Savings Bank also bought a failed thrift in South Lake Tahoe.
Frenzied Week
The announcements climaxed a frenzied and highly charged week during which the Federal Home Loan Bank Board bailed out dozens of failed thrifts at a cost of billions of dollars. One bailout package in Texas alone, announced Wednesday by Bank Board Chairman M. Danny Wall, cost more than $5 billion.
Saturday’s activity brought bailouts in 1988--through mergers, acquisitions and liquidations--to 217, the highest number since the Depression. The Federal Savings and Loan Insurance Corp. has now committed about $39 billion to bail out failed thrifts, nearly all of which was pledged in the past year.
The funds used to bail out failed thrifts comes from the FSLIC, an industry-funded government agency that is expected to eventually need tax dollars to meet its obligations. The FSLIC is not reimbursed for its assistance.
Most of these thrifts failed because of various combinations of poor loans, alleged fraud by insiders and depressed local economies. And despite the recent rescues, several hundred more thrifts remain open for business but are insolvent, meaning their debts exceed their assets.
Last week’s pace was fueled by a rush of buyers and sellers to obtain the maximum tax benefits before the year ended. Those benefits, which include tax-free assistance and tax credits that may be applied against future earnings, will be halved starting today.
The rapid-fire deals, though, have triggered protests from key members of Congress who say the sales amount to a raid on the U.S. Treasury by wealthy corporations and private investors. Sen. Timothy E. Wirth (D-Colo.) estimated that a $400-million investment by Ford Motor Co. in failed thrifts could yield 10 times that amount in tax credits. First Nationwide Financial Corp., Ford’s savings and loan subsidiary, bought four failed thrifts Friday in Colorado, Ohio and Illinois.
Last of Long List
The rescue of Beverly Hills Savings bails out one of the last major California thrifts that is in deep financial trouble. In recent days and months, regulators have found buyers for failed thrifts like American Savings, Southern California Savings, Bell Savings and Eureka Savings.
The rescue of American Savings, announced Wednesday, qualified as the single largest thrift ever bailed out by the Federal Home Loan Bank Board. American Savings had more than $30 billion in assets, second largest in the country behind Home Savings of America.
Beverly Hills Savings, which has its headquarters in the Orange County community of Mission Viejo, had proved a tough sell because it has a small branch network and a huge collection of problem assets. The financial institution failed because of bad investments it made in commercial real estate and in high-yield securities known as junk bonds.
Earns $67 Million
Michigan National Corp.’s main holding is Michigan National Bank, which accounts for most of the parent company’s $9.1 billion in assets. The parent company, which earned $67 million in the first nine months of 1988, is headed by Robert J. Mylod, a former president of the Federal National Mortgage Assn., the quasi-government agency known as Fannie Mae.
Commercial banks are prohibited from buying healthy thrifts, but several banks have bought troubled institutions to gain a foothold in markets they cannot enter as banks because of interstate banking restrictions.
Michigan National’s purchase of Beverly Hills is similar to Citicorp’s purchase of failing thrifts in several states around the country, including California. The transaction gives the Midwestern bank access to the nation’s richest consumer banking market before California is scheduled to remove the barriers to interstate banking in 1991. The FSLIC assistance included a note for $794 million as well as cash to subsidize future losses. Regulators said Beverly Hills’ six branches would be open for business as usual on Tuesday morning.
To Use New Name
In another California thrift rescue, Home Federal Savings put up $25 million in capital to take over Columbus Savings & Loan in San Rafael, Cal America Savings & Loan in Walnut Creek and First Security, a savings and loan in Pleasant Hill. All three will open Tuesday under the name of Columbus Savings.
Their combined assets total nearly $575 million and they have 16 retail branch offices in several counties around San Francisco. “This fills in some holes for us in the San Francisco market,” Peter H. Pickslay, general counsel for Home Federal Savings, said in a telephone interview.
The FSLIC agreed to assist the sale with a $243-million financial aid package that will shore up net worth and subsidize future losses on troubled assets. Regulators said it would have cost $320 million to close the thrifts, pay off depositors and liquidate the assets.
Both Columbus Savings and Cal America Savings had enormous negative net worth that resulted from soured real estate development loans. Columbus Savings’ former president, Ted Musacchio, was indicted last summer on fraud charges.
Outbid by Investors
Home Federal Savings, which has more than $16 billion in assets, has tried to buy other failed thrifts recently, but Saturday’s package was its first successful bid. It tried to buy Eureka Savings in the Bay Area last year, but it was outbid by private investors, Pickslay said.
In buying Broward Federal Savings in Florida, California Federal Savings agreed to provide $20.4 million in capital to take over a company with $564 million in assets and $491 million in deposits. The FSLIC is providing assistance of $151 million in cash and notes over 10 years.
Broward Federal had a negative net worth of $136 million because of losses on commercial loans and non-performing assets. But California Federal officials wanted Broward because its branch system fit well with California Federal’s existing 42 branches in Florida.
“From a tactical standpoint the Broward acquisition is a perfect fit for us,” John R. Torell III, California Federal’s chairman, said in a prepared statement.
Lake Tahoe Rescue
In the rescue at Lake Tahoe, First Network Savings Bank took over Tahoe Savings & Loan, which had suffered heavy losses on development loans, joint ventures and delinquencies. As a result, Tahoe Savings’ debts exceeded its assets by more than $33 million.
The FSLIC provided an assistance package valued at $29.9 million to complete the deal, while First Network has agreed to pay the FSLIC a purchase price of $1.25 million. Regulators said the estimated liquidation cost of Tahoe Savings was $40 million.
