RESCUING THE S&Ls; : First in Line : Regulators Take a New Look at Future of Pacific Savings

Except for a 3 p.m. staff meeting at Pacific Savings Bank headquarters, there was little evidence Tuesday that a joint task force of federal regulators had just moved in to assume oversight of the insolvent Costa Mesa institution.

Customers continued to come and go, employees went about their business as usual and managers of the troubled thrift kept operating the same way they have for months.

Despite the flurry of attention focused on Pacific Savings, little actually changed as the S&L; became one of the first targets in the Bush Administration’s intensive effort to clean up the nation’s savings and loan industry.

Pacific, which was placed into a conservatorship Tuesday, is one of more than 500 savings and loans across the country that have lost billions of dollars as a result of industry deregulation, economic downturns, mismanagement and, in some cases, outright fraud.

The change in supervision is expected to have no noticeable effect on Pacific Savings’ customers, whose deposits continue to be insured up to $100,000 each.

Through much of last year, regulators and industry leaders viewed the S&L; as “salvageable” and a likely candidate for a merger with a healthy organization.

For now, though, anyone who wants to buy Pacific Savings may have to wait. Members of the joint task force, composed of banking and S&L; regulators, said they aren’t sure exactly who would be authorized to approve a sale.

Meantime, “it’s business as usual” for the S&L; and consumers, one regulator said. The same managers hired 20 months ago from Glendale Federal Savings & Loan will continue to operate Pacific Savings under the same business plan.

“I do feel it’s a positive process and we intend to cooperate,” said Harvey A. Lynch, a GlenFed executive acting as president of Pacific Savings. “We’ve been told that the business plan is consistent with what the banking and savings and loan regulators believe is prudent.”

Part of the blame for the savings industry debacle has been pinned on deregulation in 1982, which ushered in an entrepreneurial management spirit and, some say, a lax regulatory attitude.

Many S&Ls; jumped at the chance to make nontraditional investments.And many of those investments turned sour, leaving the federal S&L; deposit insurance fund all but bankrupt.

Pacific Savings lost more than $262 million in the past six years as it pursued a strategy of selling off many branches while favoring commercial lending in California and speculative investments in Texas and other Southwest states.

Members of the joint task force at the S&L; and Pacific Savings personnel viewed Tuesday’s action as little more than a “regulatory shift of power.”

“Liquidation is not an option for us,” one Pacific executive said. “As far as we know, we’re still being considered for sale.”

But banking regulators, particularly the Federal Deposit Insurance Corp., are known for acting quickly and, often, for liquidating ailing institutions.

“I think this means that the chances Pacific could be prepared for liquidation are greater now than ever before,” said Edward Carpenter, a Costa Mesa banking consultant. “The goal now is to accomplish quick reviews and quick actions.”

FDIC officials acknowledged that their aggressive approach will speed up the handling of failed S&Ls; once Congress approves funds for the program laid out Monday by President Bush.

Within a month, all insolvent S&Ls; in Southern California will likely be put in conservatorships similar to the one Pacific Savings was put in, said Stephen Katsanos, an FDIC spokesman.

The FDIC and other banking regulators--the Comptroller of the Currency and the Federal Reserve Board--were called into service under President Bush’s proposal to help resolve the mess in the ailing S&L; industry.

Some 350 S&Ls; nationwide are still insolvent, and Bush’s plan is to quickly merge or close all of them. The joint task force plans to seize 224 S&Ls; in the next few weeks.

Other Southern California S&Ls; that are likely targets for seizure are the following, listed with their negative regulatory net worth figures as of Sept. 30:

Westwood Savings & Loan of Los Angeles, minus $222.7 million; First California Savings of Orange, minus $71.4 million; Founders Savings & Loan of Los Angeles, minus $36 million; Arrowhead Pacific Savings Bank of San Bernardino, minus $23.4 million; Signal Savings & Loan of Signal Hill, minus $7.8 million; Perpetual Savings of Santa Ana, minus $11.5 million; Unified Savings of Northridge, minus $15.8 million, and Manhattan Beach Savings & Loan of Manhattan Beach, minus $18.6 million.

The task force will use about six examiners to review the loans and other assets on the books of Pacific Savings and try to determine what options exist to resolve the problems, said Keith Seibold, an FDIC employee at the S&L; Tuesday.

After the first nine months last year, Pacific Savings had a negative regulatory net worth of $200.3 million, which means its liabilities exceeded its $1.1 billion in assets by that much.

Pacific Savings was established in its current form in 1981 with the three-way merger of Santa Fe Federal Savings & Loan of Riverside, Oceanside Federal Savings & Loan and Pacific Federal Savings & Loan of Hollywood. But Pacific Savings traces it roots to 1890, when the S&L; was founded in Riverside.

It moved its headquarters from Hollywood to Costa Mesa in 1982 specifically to take part in the Costa Mesa downtown redevelopment.

Pacific Savings built its own corporate headquarters and a branch office in a Spanish-style complex on Newport Boulevard and financed a matching project, the $22-million Courtyards retail and commercial complex that opened just a block away in 1985.

By then, however, the S&L; already was beginning to falter. It began selling its well-regarded branch offices as it aggressively entered the market of commercial and industrial lending and real estate investing. In 1983, it posted a $7.2-million annual loss, largely because of loans and investments that went bad.

In the early 1980s, the S&L; invested millions of dollars in the then-booming states of Texas, Colorado and Louisiana--and lost it all when the energy crunch hit and plunged those three states’ economies into depression.

In 1986, Pacific lost $109.5 million and saw its net worth, required by federal regulation to be a minimum of $44.5 million, plunge to a negative $69.3 million.

Before those disastrous results were announced, however, federal regulators stepped in and warned Pacific about its shaky financial status. The S&L; then began talking with potential suitors about an acquisition, but to no avail.

In 1987, regulators replaced all of Pacific’s top management, contracting with GlenFed to take over the job of operating the S&L--the; state’s 29th largest with more than $1.2 billion in assets at the time.

Since then, Lynch, the acting president, has revived the S&L;’s moribund branch operations, now down to 11 branches, and steered it toward traditional mortgages and safer investments.