Fortunes Fade for Tattered S&L; Trade Group : Thrifts: Industry scandals and staggering bailout costs have rocked the once all-powerful U.S. League of Savings Institutions.
Not long ago, the U.S. League of Savings Institutions had clout that few trade groups enjoy.
It picked people who regulated it. It wrote laws that sailed through Congress, and torpedoed ones that it didn’t like. It wined and dined politicians nightly. Most of the time it got its way.
“The league was all powerful,” said Edwin J. Gray Jr., who regulated the thrift industry from 1983 to 1987 as head of the Federal Home Loan Bank Board.
Now the good times are over. Today, the league, shrunken and humbler, gathers in Chicago for its annual convention. Like the thrift industry that it represents, the league is in tatters. It is losing members by the hundreds. Its influence and credibility are nowhere near what they once were.
Since 1985, some 600 thrifts have dropped off its membership rolls, leaving 2,765. Most of those that left were insolvent S&Ls; that were acquired, merged into other thrifts or went out of business. League officials expect that 200 or more may be gone by year-end as regulators continue mopping up troubled institutions as part of the federal government’s huge savings and loan bailout.
The membership drop has caused big financial headaches for the trade group. Facing a cash crunch, the league was forced to slash its budget for next year to a projected $27 million. That compares to $32.5 million in 1988. Among the casualties: 50 employees lost their jobs earlier this year, representing more than 10% of the league’s workers.
More challenging than stemming the U.S. League’s financial and membership problems may be repairing the image of both the trade group and the industry. Few industries have been subjected to the public flogging that the thrift industry and its trade group took this year.
Taxpayers are angry at having been blindsided by a staggering savings and loan fiasco. Losses are so severe and climbing so fast that the bill for taxpayers, some estimate, may eventually exceed $1,000 for every man, woman and child in the nation. It didn’t help the industry image that taxpayer-insured deposits at some rogue institutions were squandered on paintings that hang in the Vatican, antique car collections, French chefs and 605-room resorts.
Whereas the league once got its way in legislative scraps, this summer it lost nearly every major fight in shaping the bailout and the stricter regulations that came with it. Legislators who once were cozy with the league scorned it. Many politicians and industry officials say the league shoulders much of the blame for the thrift mess, for fighting such things as restrictions on risky investments that might have helped stem the red ink.
“Its image is at an all-time low,” said Richard Pratt, who headed the Federal Home Loan Bank Board before Gray and now heads the mortgage capital markets operations at Merrill Lynch & Co.
Earlier this year, investor Warren E. Buffett and partner Charles T. Munger, who control Mutual Savings, a small thrift in Pasadena, pulled the institution out of the league in disgust. Had it been anyone else, it probably would have gone unnoticed. But this was Warren Buffett talking, the nation’s second-richest individual and one of its most respected investors.
At the time, the league was fighting some provisions in the federal bailout eventually signed by President Bush in August. In a letter to the league, Munger went so far as to say its actions were as if Exxon had encouraged drinking by tanker captains after the Valdez oil spill.
“It was the biggest mess and biggest scandal that ever happened to financial institutions in the United States. And the league had almost a 100% record of being on the wrong side of the issues,” Munger said in an interview.
Needless to say, the trade group believes that it has been unfairly picked on.
“My gut tells me that the league was a convenient whipping boy, punching bag and fall guy,” said Frederick L. Webber, president and chief executive of the league.
No one, league officials argue, knew the extent of the thrift mess when the first signs appeared. Government estimates were particularly bad, they add. And policing rogue members, they argue, is not the job of any trade group.
B. R. (Barney) Beeksma, outgoing chairman of the league, contends that the worst thrift owners have been purged from the business, particularly those that ran the high-flying institutions in Texas and California. He said this reflects a much more conservative group that favors such things as stronger capital, the financial cushion that thrifts must maintain.
“It’s taken a bum rap,” Beeksma said.
Webber, a former soft-drink industry trade official, has the job of restoring the league and keeping it financially sound. In general, he gets good reviews so far.
“It’s one of the toughest trade association jobs in Washington,” Webber said.
Webber took over as chief executive late last year from William O’Connell, under whose leadership the association reached its zenith in the mid-1980s while becoming so controversial.
It once employed a lobbyist nicknamed “Snake” whose wining and dining of Fernand St Germain, the former Rhode Island congressman and House Banking Committee chairman, sparked a number of official inquiries that died after St Germain was defeated for re-election.
In addition to entertaining politicians, the league sometimes had an incestuous relationship with regulators. Gray, for example, was first approached about the bank board job by league officials, not people from the Reagan Administration. Once he had the group’s blessing, he says now, his confirmation hearing was “like a knife cutting through butter.”
Members and league officials are sensitive to past misdeeds of league officials.
“That can’t happen again. I think you’ve got to keep control,” said Norman M. Coulson, chief executive of Glenfed Inc., parent of Glendale Federal Bank.
Webber hesitated to comment on past league activities, saying he doesn’t like to discuss things that went on before he took over. He said, however, that the league has moved on and describes those days as “nothing but a vague memory.”
Webber and league officials say that the league’s power in the past was exaggerated and that its relationship with regulators varied with each one.
“When you call an organization all powerful, you assume you can own congressmen and senators. That’s dead wrong,” Webber said.
But Gray, the former head of the bank board, disagreed. He was friendly with the league at first, but came to resent it as it fought his efforts to stem the big losses that he saw coming.
“They killed every piece of reform legislation we sent to Congress. They wrote all the laws,” Gray said. Among the proposals it killed, he said, was one that would have curtailed the kind of direct investments that got many thrifts into trouble.
Uniting league members will be difficult for Webber as well. Herbert M. Sandler, chairman of Oakland-based Golden West Financial Corp., parent of World Savings, said he is continually questioning whether his thrift should be a member.
“It’s not just me. There are many, many others. What we are waiting to see is what Fred Webber will do,” Sandler said.
Sandler, who runs one of the largest and healthiest thrifts in the nation, is disillusioned with the league. He said it has fought too long for rules that the weakest, worst managed institutions need. Sandler said he was especially disappointed that the league did not take a stronger stand this summer on measures to make sure that the thrift debacle doesn’t happen again.
Defections by larger thrifts could cripple the league. Members pay according to size, and the larger ones can pay dues of $30,000 to $60,000 a year.
Some members suggest that for the league to recover, it must make affordable housing and increased home ownership its main goals and become the lobby that is most often identified with those issues.
The league seems to be moving that way. The program for this week’s convention is titled “Housing: Continuing the Commitment,” and a large proportion of seminars for members involve housing issues.
Beyond internal politics, the league must deal with larger problems facing the entire industry. Some predict that the thrift industry won’t exist as a separate business in 10 years as S&Ls; become more like banks. A lot of thrifts don’t even want to be called savings and loans anymore, and have changed their names to banks.
This summer’s bailout will force many thrifts out of business, and its tougher standards will make it harder for some thrifts to stay independent.
Said Pratt, the former bank board head: “The primarily role for the league now is one of damage control.”