Savers Take Seizure of Lincoln Calmly : But Investors in Parent’s Bonds See Little Hope of Repayment

It didn’t seem to matter much that the federal government is already feeling the strain of bailing out the nation’s troubled savings and loans--a project that has already cost $40 billion and makes banking experts nervous.

Confidence reigned Friday, for the most part, among customers at Lincoln Savings & Loan Assn. after the 7 a.m. seizure of the troubled Irvine institution by federal regulators.

“I have complete trust in the federal government,” declared one Irvine customer as he conducted business at Lincoln’s Barranca Parkway branch. “I can’t believe the U.S. government will run out of money.”

Lincoln and its 29 branch offices in Southern California were placed in conservatorship Friday on grounds that the institution’s assets had been substantially dissipated and that it was operating in an unsafe and unsound condition.

But while Federal Home Loan Bank Board officials stationed at various Lincoln branches Friday said business volume was heavier than normal in the morning, there were apparently no runs on deposits and no panic by customers.

“We had a lot of telephone calls in the morning, but it had all died down by noon,” said David Loveday, a spokesman for the Federal Savings and Loan Insurance Corp., the agency that insures deposits at such S&Ls.; Loveday was camped out at Lincoln’s headquarters branch in Irvine.

Some Plan to Switch

Not that the seizure, in the wake of the bankruptcy filing Thursday by Lincoln’s owner American Continental Corp., didn’t have some fallout among customers.

“I plan on withdrawing all my money from this bank and finding a new one,” said Lisa Spielmann of Anaheim.

But Louise Jacobs of Santa Ana was nonchalant as she left the S&L;’s Santa Ana office: “I hadn’t thought much about it. I don’t have that much money in here, so I don’t feel like I have a lot to lose.”

Sally Frueh, an Irvine customer of the troubled S&L;, said she is vacillating about her family’s Lincoln account.

“I keep trying to decide whether to close our account or not,” Frueh said. “I don’t know what to think. We just have a checking account here. If it was a savings account, I would have pulled it out already.”

Investors in American Continental--many of whom are customers at Lincoln--were far more vulnerable. American Continental’s petition under the Chapter 11 bankruptcy laws jeopardized the holdings of some 12,000 Southland investors who own about $200 million in American Continental debt.

“We have a situation where the tens of thousands of people who own debentures have nowhere to turn,” said one investor and depositor who asked that his name not be used. “This (the debentures) is an uninsured product that has no backing” beyond the implied backing supplied by Lincoln, which is now in serious financial trouble.

Sales Were Stopped

Much of the American Continental debt was sold in small denomination bonds to customers of Lincoln’s branches in Southern California.

Many of those bonds were sold through American Continental desks stationed in Lincoln offices until the state regulators ordered Lincoln to stop the practice last year. State law prohibits an S&L; from selling the corporate debt of its parent.

Jean and Donald Bowman invested $120,000 in American Continental bonds--money that she fears she’ll never see again.

“There isn’t too much hope really,” Jean Bowman said Friday. “This is not my life savings. It’s just a portion, but it’s enough to sting.”

It’s not as if the Bowmans were entirely unsophisticated investors. Don Bowman had read American’s bulky prospectus and said it looked very safe, Jean Bowman said.

She said sales representatives at the Lincoln branch where the Bowmans invested an initial $20,000 told them that American Continental Chairman Charles H. Keating Jr. had “one of the most successful private enterprises in the U.S.”

“They implied that everything he touched was very safe, and that’s what I fell for,” said Jean Bowman, who lives in the San Fernando Valley. “They said what good condition Lincoln was in. They weren’t high pressure, but they made you feel like you were very safe. They were very sweet.”

Times staff writer John O’Dell also contributed to this story