Spiegel to Quit Columbia S & L Amid Growing Losses

Thomas Spiegel, a maverick who built Columbia Savings & Loan into one of the nation’s most controversial thrifts by using federally insured deposits to buy high-risk junk bonds, announced Monday that he will resign Dec. 31 as head of the Beverly Hills institution.

The resignation of Spiegel, 43, who will remain a Columbia consultant, comes at a tumultuous time for the thrift. After years of posting big profits from its junk bonds and other high-yield investments, it is now showing huge losses as the value of its $3.8-billion portfolio tumbles.

In recent months, junk bonds have fallen sharply in price as investors have grown nervous about their safety, sparked in part by problems at some companies that issued them and fears of a recession. In addition, new federal thrift rules, enacted to rein in non-traditional thrift investments, require Columbia to sell its bonds by 1994, and devalue those bonds on its books to reflect the depressed values they are selling for lately.

Junk bonds are financial instruments issued by companies with low credit ratings. They pay holders a higher yield, above 12% in recent years, to compensate for the added risk. As of Nov. 30, Columbia’s unrealized losses on its high-yield investments--largely the difference between what Columbia paid for the junk bonds and what investors are willing to pay for them on the open market--was a staggering $744 million, according to Columbia executives. About $100 million of that amount came in November alone, the executives said.

Columbia so far has set aside about $300 million as a cushion against those losses. In the third quarter ended Sept. 30, Columbia posted a $226.3-million loss. Its stock has plunged from nearly $12 a share this spring to close at $2.75 on Monday.

In a statement, Spiegel cited the rapid deterioration of the junk-bond market as prompting his resignation as chairman, chief executive, president and a director. He also cited “the publicity surrounding me,” an indirect reference to the attention given his business and personal ties to indicted financier Michael R. Milken. Columbia and Spiegel’s father, Abraham, who founded the thrift, also have been publicly linked to the investigation of Mayor Tom Bradley’s financial dealings.

Milken, the former Drexel Burnham Lambert junk-bond executive, is awaiting trial in federal court in New York on securities fraud and racketeering charges.

Spiegel, who with his family owns more than half of Columbia’s stock, built a profitable thrift largely by using funds gathered by Wall Street “money brokers”--people who invest money in savings and loan accounts that offer high yields. He offered attractive rates to those money brokers, then locked in a profit by buying lucrative junk bonds from Milken’s clients that paid a higher yield than he was paying out for deposits.

Spiegel, in the announcement, said he plans to work with investment bankers at First Boston Corp. to form an “entity” for the junk bonds. Most likely, Columbia’s junk bonds would be spun off somehow to a separate company, trust or partnership, and Columbia would continue to reap some profits from the bonds by holding a stake in the firm and providing loans to it.

Acquaintances of Spiegel said they are not surprised that he would want to head a junk bond operation and even leave the chief executive’s job, since he clearly is more interested in investing than he is in running a traditional thrift. But without access to those federally insured deposits and with Milken’s future clouded, they said, it would be more difficult for him to work his magic as he did at Columbia.

Those familiar with Columbia said that Spiegel probably will run the operation. It most likely will attract money from institutional investors such as pension funds and insurance companies by issuing securities backed by the junk bonds.

Spiegel acquaintances said the timing of his leaving is curious because no successor has been found. Columbia named Kenneth R. Heitz, Columbia’s principal lawyer, to fill in for him, adding that candidates are being screened by an executive search firm.

Thrift industry executives who know Spiegel speculated that he may be leaving in anticipation of an embarrassing disclosure, possibly related to the Milken case. Columbia investments and trades have been under investigation by federal prosecutors, and Columbia records have been subpoenaed.

Heitz said, however, that neither Columbia nor Spiegel has received a so-called “target letter”--one sent by prosecutors when an indictment is imminent. He added that prosecutors have told him that neither Spiegel nor the thrift will be named in an expanded indictment expected soon in the Milken case.

Columbia, although not Thomas Spiegel personally, has been linked to Bradley in the ongoing investigation into the mayor’s finances. Spiegel’s father, Abraham, is a longtime personal friend, traveling companion and political contributor to Bradley who has advised the mayor on his investments. Also, an embarrassing loan and junk-bond investment made to former Rep. Tony Coelho (D-Merced) through Thomas Spiegel also helped prompt Coelho’s resignation earlier this year.

Columbia’s biggest problems are maintaining adequate capital--the financial cushion against losses--in the wake of its deteriorating junk bond values and finding a replacement for Spiegel quickly. In its announcement Monday, however, Columbia confirmed that it failed to meet one of three new capital standards that took effect effect Thursday.

The standard it flunked is called a “risk-based” measurement--a measure computed by weighing the riskiness of a thrift’s investments. As a result, Columbia will have to file a plan with regulators within a month showing how it will come into compliance with standards. Columbia said regulators had no influence over Spiegel’s decision to resign, and that it was voluntary.

Until recently, Columbia has been among the best capitalized thrifts in the nation. One of its advertising campaigns touted it as the best managed major thrift in the country, based on ratings published in Forbes magazine.

As previously reported, Columbia also is involved in an accounting dispute with federal regulators from the Office of Thrift Supervision over whether it can count money set aside for unspecificed losses on its junk bond investments as capital.

Heitz said that despite its problems with the junk bond market, Columbia will be able to meet the new capital standards after its restructuring is finished. He noted that the thrift has sold nearly all of its $3.5-billion portfolio of mortgage-backed securities--packages of mortgages that investors buy--for a gain of nearly $90 million and sold public and private stock for another gain of $75 million.

JUNK BOND ADVOCATE--Columbia S&L; Chief Spiegel was not a traditional thrift executive. D1.