With Seizure, Thrift’s Shane Loses Platform : S&Ls;: Mercury’s boss, one of the most visible and articulate industry leaders, is also known for his bulldog-like devotion to causes and charities.
Only a month ago, Leonard Shane was basking in what he called the “capstone” of his career, a testimonial dinner honoring his 50 years of philanthropic service to the community and the causes he believes in.
More than a dozen speakers paid their respects to a man who had given unselfishly of his time and money to many causes, ranging from the Orange County Philharmonic to Israel’s Ben Gurion University of the Negev.
But hardly a word was spoken that night, several of the 500 people in attendance said, about the strict order issued three days earlier by federal regulators that all but shut down Mercury Savings & Loan, the institution he co-founded 26 years ago.
Shane is a man driven by passion. One of those passions died Friday when regulators walked into Mercury’s Huntington Beach headquarters and seized control of the thrift, removing Shane as chairman and ousting its directors.
Mercury is the third county thrift taken over by regulators this year, and the 18th seized in the last five years. With $2.15 billion in assets, it also is the third-largest S&L--behind; Lincoln Savings and American Savings, both in Irvine--to be seized.
But Mercury was more than just a large thrift. It was also the platform from which Shane advocated the American dream of home ownership and became one of the most visible and articulate industry leaders.
Shane, 67, is known for his bulldog-like devotion to the causes and charities he has supported through the years. He is a short, rotund man with a heart--a friend said--as big as himself.
Through Shane, the S&L; espoused the traditional industry business of home lending and supported regulators in their effort to rein in the industry’s high fliers, whose risky investments of depositors’ money led to huge losses that threatened the industry’s deposit insurance fund.
“It’s the first one to be taken over that never had a junk bond,” Shane said Friday, more as a statement about Mercury’s conservative lending than a statement of fact. Indeed, many of the 400 S&Ls; seized in 1989 and this year did not hold the high-risk, high-yield corporate securities known as junk bonds. Federal law now bars junk bonds as a thrift investment.
Mercury’s problems stemmed mainly from the accounting practices it followed in its mortgage-loan servicing business. The thrift booked as current income certain profits it expected to earn in the future, a practice allowed by accounting rules but considered to be aggressive by some industry consultants.
The practice boosted Mercury’s current assets, income and net worth. But when the loans paid off sooner than expected, the S&L; had to reverse that income, sending it into a tailspin that resulted in a $13.8-million loss in 1988 and a $5.4-million loss for the first nine months last year.
In addition, Mercury’s capital--its last reserve against losses--had included the good will it picked up in 1981, when it bought an ailing S&L; in Los Angeles. Good will, an intangible asset that must be written off over time, made up 50% or more of Mercury’s capital. New federal law requires good will to be eliminated from an S&L;’s capital calculations in five years.
Finally, last month, Mercury reduced the value of $60.7 million in two hotel loans, an action that, coupled with continuing accounting adjustments, forced the S&L; to write down its assets by $32 million and wiped out its capital. That is when regulators imposed strict orders to halt all new lending and investments. Even regulators hinted then that a takeover was inevitable.
“I’m very sorry to hear about the seizure,” said Edwin J. Gray, the nation’s former top thrift regulator and a friend of Shane’s. Others in the industry voiced similar sentiments.
“It’s unfortunate,” said Gerald H. McQuarrie, chief executive of Downey Savings & Loan in Newport Beach. “Leonard is a fine individual, and I’m sorry to hear it.”
William O’Connell, former president of the U.S. League of Savings Institutions, criticized the federal law enacted in August to rescue the deposit insurance fund for forcing Mercury and many other “honest operators” into the hands of regulators.
“I’m astonished at what’s happening,” O’Connell said. “Regulators are seizing a lot of huge institutions that are run by honest people. I question if that is a wise federal policy.”
He called the new law a “disaster,” and accused regulators of moving harshly against S&Ls; when there is “plenty of room” to take less aggressive action.
S&LS; SEIZED: U.S. seizes Mercury Savings in Huntington Beach and Imperial Savings in San Diego A1
