Federal regulators seized ailing Lincoln Savings & Loan Assn. of Irvine early Friday and ousted its top management, one day after its parent company, American Continental Corp., filed for bankruptcy.
In taking control of Lincoln and its 29 branches throughout Southern California, the Federal Home Loan Bank Board declared that the savings and loan was being operated in an unsafe manner and that its assets had been "substantially dissipated."
Regulators said all of the S&L;'s branches will continue operating and that Friday's takeover will not affect depositors or most of the S&L;'s 800 employees. The federal government will continue to insure deposits of up to $100,000.
The bank board said the S&L;'s management "appeared to operate Lincoln mainly for the benefit of American Continental Corp. at the expense of the institution (and) has repeatedly violated regulations relating to transactions with affiliates, used poor underwriting and has refused to follow supervisory directives."
Regulatory officials refused to go beyond that statement but privately said they believe that Phoenix-based American Continental had been draining Lincoln's assets.
Lincoln, the 42nd largest S&L; in the country, is the latest major California S&L; and the 16th in the state to be seized by regulators this year. Gibraltar Savings in Beverly Hills was taken over just 2 weeks ago. It is the 216th institution to be placed in an oversight program announced by President Bush in February as part of his S&L; rescue plan.
A spokesman for American Continental called the government's action "unfortunate and regrettable" and suggested that it stemmed from a government vendetta against American Continental Chairman Charles H. Keating Jr. rather than from real problems at Lincoln. Keating is American Continental's major shareholder.
Several regulators said they suspect that American Continental filed for Chapter 11 bankruptcy protection from creditors on Thursday to keep the bank board and its deposit insurance agency, the Federal Savings and Loan Insurance Corp., from seizing American Continental assets they may claim belong to the S&L.;
Marc Winthrop, an Irvine bankruptcy attorney, suggested that it may now be difficult for regulators to go after American Continental assets because they will have to argue for them in bankruptcy court, where the government has no priority claim over other creditors.
Lincoln, with deposits of $4.4 billion in 176,323 accounts, had assets of $5.4 billion but only $20 million in required capital on hand when it was seized, regulators said. It should have had almost $325 million in capital to meet the requirements set by the bank board, they said.
The American Continental spokesman said that officials at American Continental and Lincoln have had a "long-running feud" with regulators over how Lincoln's capital is being counted and claimed that the S&L; actually has at least $200 million more than regulators are crediting it with.
Keating, a politically connected developer who bought Lincoln in 1984 and rapidly quintupled its size, has been involved in a number of feuds with S&L; regulators over the years.
The battles generally have centered on his insistence in involving the S&L; in highly speculative commercial real estate investment and development rather than sticking with relatively safe but lower-profit single-family home loans.
Friday's action was taken by the bank board in concert with the Federal Deposit Insurance Corp..
In Washington, Rep. Henry B. Gonzalez, House Banking Committee chairman, blamed bank board Chairman M. Danny Wall for "gross mishandling" of the Lincoln case and called for Wall's removal.
He said Wall was influenced by Keating supporters to disregard the May, 1987, recommendation of the Federal Home Loan Bank of San Francisco that Lincoln be seized because of substantial irregularities in its operations.
Wall barred regional officials in San Francisco from taking action against Lincoln and ordered a new audit of the S&L; by examiners from the bank board offices in Washington.
Before Wall ordered the new audit, five U.S. senators, all of whom had received large campaign contributions from American Continental officers and employees, met with regulators in San Francisco at Lincoln's request to try to assuage doubts about the S&L.;
Gonzalez, a Texas Democrat, said Friday that the nearly 2 years of delay since the San Francisco regulators first recommended placing Lincoln under government control will cost taxpayers millions of dollars.
Wall has said the independent review of the San Francisco regulators' findings was ordered because enough questions had been raised about their actions to warrant a second look.
While American Continental still is legal owner of the S&L;'s stock, the join oversight program gives federal regulators actual control of the S&L;'s management.
"We take over the top management, then run it to stabilize it while we try to find a buyer," said FSLIC spokesman David Loveday. If a buyer cannot be found, the S&L; ultimately is closed and its assets liquidated, he said.
Mark C. Randall, a senior examiner with the FDIC, was named managing agent for Lincoln, effectively becoming its chairman and board of directors. F. Roger Clark, who until recently managed Montfort Savings, a large government-owned thrift in Dallas, was named chief executive of Lincoln, and an advisory board of industry specialists was named to assist Randall and Clark.
John H. Rousselot, the former Republican congressman from Arcadia who was named Lincoln's chairman and chief executive officer Tuesday, resigned those posts Friday. Rousselot led a group of investors negotiating to buy Lincoln. His appointment had been made in hopes of speeding approval of the sale, which regulators turned down Thursday.
American Continental had agreed to sell Lincoln to Rousselot's group for $200 million in cash and stock. American had agreed to pump in $50 million in new capital after the sale. Rousselot was to raise $150 million in capital over the next 3 years. Regulators said the deal would not provide nearly enough capital to revive Lincoln.
REACTION TO SEIZURE
Savers are calm but investors may lose their money.
Parent company's chairman has friends in high places.
Both stories in Business, Page 1