Gonzalez Blasts Thrift Regulators Over Lincoln S

The chairman of the House Banking Committee accused federal regulators in Washington on Thursday of “muzzling” their California subordinates who were trying to control the explosive growth of Lincoln Savings & Loan.

The Federal Home Loan Bank Board in Washington took direct regulatory oversight of Irvine-based Lincoln nine months ago. In the highly unusual step, Washington removed responsibility from the regional home loan bank in San Francisco after complaints and lobbying from Lincoln’s top management.

As early as March, 1986, home loan bank examiners from San Francisco identified losses of $135 million by Lincoln based on such things as the reduced value of outside investments and false profits on loans, according to a chronology distributed at a banking committee hearing here. In May, 1987, the regional officials recommended appointment of a conservator or receiver for Lincoln.

Rep. Henry B. Gonzalez (D-Tex.), the banking committee chairman, angrily denounced bank board officials in Washington for refusing to give his committee documents on the case and for barring locally based federal regulators from discussing the matter.

“There is no question (Washington) is muzzling them and is stonewalling the committee,” Gonzalez told reporters Thursday during a recess in the hearing. The hearing will continue today, with bank board officials from Washington scheduled to testify.

James Cirona, president of the San Francisco home loan bank, declined to answer specific questions from committee members about Washington’s intervention. But he did say, “You need guts to do what your job is all about.”

Lincoln S&L;, which is being sold, has enjoyed a dramatic growth in deposits from $1.7 billion at the end of 1984 to $4.1 billion at the end of September, 1988. Its real estate investments have surged to $1 billion last September from $300 million at the end of 1984.

Regulators and committee members fear that the large-scale real estate investments could jeopardize the financial health of the firm.

By taking regulatory control away from San Francisco, the “bank board is perceived as having caved in to Lincoln’s demands and undercut its own regulators,” according to the staff chronology distributed to committee members at Thursday’s hearing. A copy was made available to The Times.

The bank board said in a letter to Gonzalez that it would not release information on Lincoln because the financial examination of the S&L; has not been completed and because the institution is up for sale.

American Continental of Phoenix is Lincoln’s parent. It said last month that it had agreed to sell the S&L; to a group of Southern California investors headed by Spencer Scott, former chairman and chief executive of Fidelity Federal Savings & Loan in Glendale, in a stock deal valued at $288.75 million.

Soon after the agreement was announced, federal regulators said they had told Lincoln that it did not have enough capital to support its operations and should stop all non-traditional S&L; activities--at least until they could review the proposed sale. Lincoln officials disputed the regulators’ contention, saying the calculations were in error.

The controversy between San Francisco and Washington over Lincoln was the highlight of the opening day of the banking committee’s foray outside Washington as it searches for a solution to the massive crisis of the S&L; industry. A federal bailout ranging as high as $115 billion may be needed eventually to close or rescue failing S&L; firms and to restore the health of the insurance fund that guarantees S&L; deposits up to $100,000.

California has one-fourth of all the nation’s S&L; deposits “and some of the great scandals exist in this state,” said Rep. Jim Leach (R-Iowa), a committee member. Speaking of state law that permits S&Ls; to enter businesses far removed from the industry’s traditional home mortgage lending, Leach said, “Your state legislature gave excessive powers . . . and left it to the regulators to clean the mess up.”

Rep. Richard H. Lehman (D-Sanger) agreed that expanded powers had “done a great deal to undermine the health of the industry in this state.” Under questioning by Lehman, Cirona of the San Francisco home loan bank said virtually all the financially ailing S&Ls; in California are state-chartered institutions that have extensively used the authority to enter risky new ventures.

The California institutions with severe problems have $20 billion in assets, about 5% of the assets in the state, Cirona said in response to inquiries by Rep. Nancy Pelosi (D-San Francisco).

Regulation has entered a tough new phase in the state, William J. Crawford, the California S&L; commissioner, told the committee.

Crawford said he will not approve new branch offices for S&Ls; and refuses to permit new lines of direct investment unless a firm has expert managers for the ventures.

Speaking of potentially risky activities, he said, “I’ve never approved one direct investment since I’ve been here.” In the past, S&L; managers had entered such unaccustomed businesses as restaurants, windmill power generators, and horse-breeding farms.