Chairman of S&L;’s Parent Known to Play Hardball
He has battled pornography in Santa Ana and abortion in Phoenix. And when federal regulators began to get tough with him, he brought in five U.S. senators to help him out.
Now Charles H. Keating Jr. is embroiled in another tussle: Early Friday morning, the Federal Deposit Insurance Corp. led a team of regulators into Keating’s Lincoln Savings & Loan Assn. to seize the thrift.
Lincoln, the government said, had “dissipated its assets through violations of regulations and laws and was operating in an unsafe and unsound condition.”
The government alleged that Lincoln’s parent company, American Continental Corp., ran the thrift mainly to benefit American’s real estate development business. Keating is chairman of American Continental.
Keating was one of a flock of developers who moved into the thrift industry after Congress deregulated it in the early 1980s.
American Continental bought Lincoln in 1984 for $51 million, and Keating soon began getting into scrapes with federal regulators. The thrift switched from the traditional business of savings and loan associations--making home loans--to become a major real estate developer and investor in high-yield and sometimes-risky junk bonds.
State and federal regulators--who get nervous when their charges begin making riskier investments--began to look into Lincoln’s affairs. The conservative Keating fought back with lawsuits and--some alleged--political influence, like rounding up the five senators to press his case with regulators.
Keating runs American Continental--85% of which is Lincoln Savings--out of a high-tech office in Phoenix, where he is a heavyweight developer and political contributor.
An ardent Catholic, Keating has also been in the news for conducting a long, noisy battle with pornography shops and X-rated movie theaters. Among his targets was the controversial Mitchell Brothers Theatre in Santa Ana, which Lincoln once sued as a danger to employees at one of its nearby branches.
Theater Still Operating
Despite repeated attempts to shut it down, the theater is still open.
American Continental once proposed that the restrictive covenants for a massive housing development on the edge of Phoenix include a clause prohibiting anyone living there from “intentionally terminating a human pregnancy.” The restriction was dropped.
Keating moved to Arizona in 1976 to head a troubled home-building company called American Financial Corp. Three years later, Keating consented to a Securities and Exchange Commission order enjoining him from allowing a bank that American Financial controlled to make improper loans to company officers.
Keating came from Cincinnati, where as early as the 1950s he was conducting campaigns to remove sexually explicit publications from newsstands.
Now in his 60s, Keating hasn’t slowed down much. After feuding with the government for years over Lincoln Savings, he took American Continental into bankruptcy this week after regulators nixed a sale of the $5.4-billion thrift.
Rousselot Associate
That deal involved a group of investors led by a conservative soul mate of Keating, former Arcadia Rep. John H. Rousselot. The feds turned thumbs down because Rousselot’s group was not putting enough cash into the $200-million deal. Three earlier deals also fell through.
Meanwhile the regulators were busy too. They charged Friday that Lincoln’s troubles began soon after American Continental bought it and began to pursue a high-growth strategy based not on increases in deposits but on buying brokered deposits to purchase real estate, stocks and junk bonds.
Lincoln doubled in size the first year that American Continental owned it, but when examiners at the Federal Home Loan Bank in San Francisco cited problems and violations at the thrift, Lincoln strenuously objected and said that the examiners were biased. The thrift asked to be put in another bank jurisdiction.
Backed Earlier Report
The bank board went back and did another investigation. That report confirmed the earlier findings, the bank board said Friday, and “uncovered additional violations of regulations.”
For his part, Keating seems still at least as truculent as those who would regulate him. American Continental filed for bankruptcy Thursday, which could move the assets of some of Lincoln’s subsidiaries beyond the government’s grasp. There will almost certainly be a protracted legal battle over control of those funds, experts believe.
“Nobody should have to live with regulators,” Keating said last year about his problems.
“Instead of using common sense, they’ve become persecutors.”
LINCOLN SAVINGS: A RECENT HISTORY
February, 1984: American Continental Corp., a Phoenix-based real estate development company, purchases Lincoln Savings & Loan in Irvine for $51 million.
March, 1986: The Federal Home Loan Bank Board begins a lengthy audit of Lincoln. American Continental Chairman Charles H. Keating Jr. contends he is being harassed because he is a strong proponent of savings and loan deregulation and expanded investment for thrifts.
December, 1987: William D. Hinz, a 25-year veteran of the S&L; business, is named chairman and chief executive as part of a restructuring to convert Lincoln into a more traditional institution.
February, 1988: After 3 months on the job, Hinz quits as chairman and chief executive in order to help an investor group negotiate the purchase of Lincoln.
May, 1988: Lincoln Savings settles its long-running dispute with thrift regulators by agreeing to raise up to $160 million in new capital. In addition, supervision of Lincoln is transferred from the Federal Home Loan Bank Board’s field office in San Francisco to its main office in Washington.
September, 1988: Lincoln’s deposits grow from $1.7 billion at the end of 1984 to $4.1 billion at the end of the month. Its real estate investments rise from $300 million to $1 billion during the same time period.
December, 1988: American Continental agrees to sell Lincoln to a Southern California investment group, headed by longtime industry executive Spencer Scott, in a stock transaction valued at $288.75 million. Soon after the agreement is announced, federal regulators say they told Lincoln that it did not have enough capital to support its operations and should stop all non-traditional S&L; activities until they can review the sale.
March, 1989: After the sales agreement for Scott’s group expires in February, a new group of investors, including former U.S. Rep. John Rousselot and four executives of Lincoln Savings, reaches a tentative agreement to buy Lincoln.
April, 1989: American Continental files for bankruptcy under Chapter 11.
