Customers Pull $60 Million Out of Lincoln S&L; : Confusion on Parent’s Bankruptcy Status Cited by Regulators

Customers withdrew $60 million from Irvine-based Lincoln Savings & Loan Assn. within 48 hours of its seizure Friday, apparently due to confusion over bankruptcy plans of its parent corporation, federal regulators said Sunday.

Some depositors closed certificate accounts before maturity and paid the early withdrawal penalty because of confusion about the status of the thrift, said M. Danny Wall, chairman of the Federal Home Loan Bank Board.

Wall announced Sunday that Lincoln, with 29 branches, will reimburse any early withdrawal penalties to customers who elect to reinstate their certificate accounts withdrawn since last Friday, April 14.

Wall, who heads the agency that put Lincoln into a conservatorship Friday, said the policy will continue “until further notice.”

“Now that depositors can see Lincoln is continuing to operate as usual under strong new management, we are extending the opportunity for them to reinstate their accounts and have the early withdrawal penalty reversed,” Wall said.

Federal regulators took control of Lincoln on Friday after the parent company, American Continental Corp. of Phoenix, declared bankruptcy Thursday. Wall said the confusion stemmed from the bankruptcy filing, which did not include Lincoln. Lincoln has a new chief executive officer and advisory board and is operating under the control of federal regulators.

A Bank Board spokeswoman said the $60 million in withdrawals is significant but not an overwhelming amount for Lincoln.

“It’s a huge institution, and that number looks a lot bigger than when you consider how big the institution is. It has over $5.4 billion in assets,” Martha Gravlee said.

Wall insisted that depositors “have no reason to withdraw their funds.”

Funds are insured by the Federal Savings and Loan Insurance Corp. and the Federal Deposit Insurance Corp. is being brought in as conservator, Wall said.

‘Misunderstanding’

“The concern that we have is that some people have confused or misunderstood the relationship between American Continental . . . and the savings and loan that they own in California that is not part of the bankruptcy,” Wall said.

Wall would not characterize the money loss as a run on the S&L; but described Saturday’s activity as “heavy withdrawals,” with particularly great activity at a limited number of branches.

Part of the confusion apparently stems from the fact that many Lincoln Savings customers were aware that its parent was seeking bankruptcy protection because they had invested in bonds issued by American Continental, Wall said.

Some of those bonds were sold at Lincoln Savings branches but the bonds were not insured because they weren’t deposits.

Wall speculated that those branches with the greatest withdrawal activity may have been where greater numbers of bonds were sold.

All of Lincoln Savings’ branches are in Southern California. As of mid-1988 it was ranked as the state’s 18th-largest thrift.

The Bank Board said upon seizing Lincoln that its troubles began when American Continental bought it in 1984.

The board said management had abandoned its traditional operations to pursue “a rapid growth strategy based on soliciting brokered deposits to purchase real estate and to fund high-risk acquisition, development and construction loans, equity securities and junk bonds.”

The Associated Press contributed to this story.