Imperial S&L; Ordered to Halt All New Loans

The parent of Imperial Savings, one of California’s largest and best-known thrifts, was ordered Friday to stop making new loans and investments while federal regulators decide if the ailing institution can ever meet tough new rules for savings and loans. The limits are so strict that Imperial cannot even make a new home loan.

The restrictions on San Diego-based Imperial Corp. of America are among the most severe taken against a major thrift since the new rules went into effect last month.

Imperial branches can still take deposits and pay interest to customers with accounts. Deposits up to $100,000 are safe because they remain insured by the federal government, and branches remain open under normal hours. Loans committed to on or before Thursday can be funded, the thrift said.

The action against Imperial comes as regulators are moving to deal with at least 800 thrift institutions nationwide that fail to meet the new standards intended to help shore up the beleaguered industry. Industry executives and analysts have said that nearly 300 of those thrifts risk being seized by regulators.

Imperial is another example of a savings and loan that took advantage of deregulation in the early 1980s allowing federally insured deposits to be used for risky investments. Imperial’s problems stem from its foray into high-risk, high-yield junk bonds and other non-traditional investments. It now fails to meet new standards for capital, which is the financial cushion savings and loan associations must maintain to protect against losses.

The tougher standards were enacted last year in the wake of the nation’s thrift debacle, which may end up costing taxpayers more than $200 billion. They were designed to force institutions and their owners to put more of their own money at risk. Thrifts that fail the capital tests may eventually be seized by regulators.

Regulators confirmed that the restrictions slapped on Imperial go well beyond normal limitations they are placing on other thrifts failing to meet the standards, which took effect Dec. 7. Imperial cannot make new home loans until regulators decide if a plan to restore its capital is acceptable. Imperial said it submitted that plan on Thursday, and would not disclose its details.

Imperial spokesman Bruce Dunn said the thrift’s executives will meet with regulators next week to obtain more details on what kind of business it can still conduct.

Dunn said that Imperial is not an isolated case. “It appears many undercapitalized thrifts have received these letters,” Dunn said.

But industry officials said the only other thrift they know of in California under restrictions as severe is Financial Corp. of Santa Barbara, parent of Santa Barbara Savings. The Santa Barbara institution announced a week ago that it is under new limits and also cannot make new loans.

In general, thrifts not meeting the capital standards will be restricted from growing in size and paying dividends to stockholders until their plans, which must be submitted by Monday, are approved. The restrictions are intended to make sure that a thrift’s problems do not worsen while regulators evaluate whether the institution can realistically build its capital level.

Office of Thrift Supervision spokesman William Fulwider in Washington declined to say whether the restrictions on Imperial were a prelude to a takeover by regulators.

Bert Ely, a thrift consultant in Alexandria, Va., said he is puzzled why regulators would put such severe restrictions on Imperial, instead of simply seizing it, if things are so bad.

“I don’t understand why they don’t just go ahead and pop it into conservatorship and be done with it,” Ely said.

However, seizures of additional sick thrifts and sales of their assets will require additional funds from Congress. As those monies are made available, government takeovers are expected to accelerate.

Fulwider said the Office of Thrift Supervision has provided its parent agency, the Resolution Trust Corp., with a list of about 200 to 300 troubled thrifts that it has targeted for takeover by regulators. Fulwider would not say whether Imperial is on that list, and he added that it was improper to infer that any S&L; placed under the restrictions such as those imposed on Imperial would inevitably be shut down. The Resolution Trust Corp. is a federal agency created by Congress last year to sell assets of failed thrifts.

Imperial has been in hot water with regulators for several months, and its problems have grown in recent weeks amid mounting problems with its junk bond portfolio. Junk bonds are high-risk, high-yield bonds issued by corporations with low credit ratings. They pay higher yields than other bonds to compensate investors for the higher risk of default.

Junk bonds have tumbled severely in value in recent months as a result of investor nervousness about financial problems at some companies that issued junk bonds. Investors also fear that a recession may hurt the ability of companies to make interest payments on their bonds.

Imperial disclosed last month that it had a negative net worth after sustaining more than $200 million in losses on its junk bond portfolio last year. Those losses were largely responsible for the firm’s $136.2-million loss in the first nine months of 1989.

Imperial has previously said that it has negative tangible capital, which is the most concrete measurement of capital and is defined as a thrift’s real assets minus its liabilities. At least $1.50 of every $100 in an S&L;’s assets must be tangible capital.

Another major thrift that invested in junk bonds, Columbia Savings & Loan in Beverly Hills, had restrictions imposed on it last November. Columbia’s restrictions, however, are not as severe as Imperial’s. A Columbia spokeswoman said Friday that the thrift has not been notified of any additional restrictions.

Executives with other major Southern California thrifts that fail to meet the standards--Mercury Savings in Huntington Beach, FarWest Savings in Newport Beach, Valley Federal Savings in Van Nuys and Great American Savings in San Diego--said Friday they are not under restrictions similar to Imperial’s and can continue to make home loans.

Founded in the 1950s, Imperial, like other California savings and loans, grew as it helped finance the state’s postwar housing boom.

That changed under former Chief Executive Kenneth J. Thygerson and investor Victor Goulet, who together helped steer Imperial Corp. of America in the mid-1980s into non-traditional investments such as junk bonds. Imperial became a major junk-bond customer of the Wall Street firm Drexel Burnham Lambert and its former junk bond wizard, Michael Milken. Thygerson resigned last July.

Imperial and other thrifts are required to sell their junk bonds by 1994 to conform to new federal rules. Imperial has reduced its holdings to $850 million from $1.4 billion.

To mollify regulators, the S&L; announced last summer that it would drastically reduce its assets to raise its capital ratio. Indeed, Imperial says its assets have shrunk to less than $10 billion from $12.3 billion at the end of 1988.

Kraul reported from San Diego and Bates reported from Los Angeles.