U.S. Seizes Imperial, Mercury Thrift Firms : Savings industry: Action was anticipated after the S&Ls; were put under severe restrictions last month.

Two of Southern California’s best-known thrifts--Imperial Savings in San Diego and Mercury Savings in Huntington Beach--were seized Friday by government regulators in a further crackdown on the nation’s largest troubled savings and loans.

Imperial, the 15th-largest thrift in the nation and 12th-largest in California as of Sept. 30, becomes one of the largest thrifts ever seized by the federal government and the largest in California now under government supervision, surpassing Gibraltar Savings, based in Simi Valley.

The seizures had been anticipated after both thrifts were put under severe operating restrictions last month as their financial conditions worsened. Those restrictions, which prohibited the thrifts from making even a home or car loan, were widely viewed as a way to control losses while regulators prepared to take over.

Still, Friday’s action is sobering news for the savings and loan industry. It shows that regulators are unlikely to permit troubled thrift operators to stay in business long if they cannot meet tough new capital standards that took effect in December, requiring institutions to maintain a stronger financial safety net to protect against losses. Those new standards were enacted as part of the nation’s massive S&L; bailout that is expected to cost taxpayers more than $200 billion.

Some industry observers said they viewed the seizure of Imperial and Mercury as a sign that regulators are stepping up their efforts to deal with large, troubled thrifts amid criticism from Congress that they are moving too slowly. Nationwide, 12 S&Ls; were seized Friday, bringing the total number of thrifts taken over since early last year to about 360. Nearly 60 nationwide and seven in California have been seized since Jan. 1. “A lot of the tall trees are getting cut down. I think they realize they have to start moving,” said Bert Ely, a thrift consultant in Alexandria, Va.

Two other major Southern California S&Ls;, Santa Barbara Savings and Valley Federal Savings, remain under strict operating rules. Many industry executives believe they will eventually be seized as well.

Branches of both Mercury and Imperial will remain open under normal business hours, and depositors are unlikely to notice any difference. Federal government insurance of deposits up to $100,000 will remain in effect. Imperial has 80 branches and Mercury has 24.

Both thrifts were taken over by the Office of Thrift Supervision, which named the federal Resolution Trust Corp. as conservator, a job that includes finding buyers for the institutions.

Imperial and Mercury took vastly different paths leading to Friday’s seizure.

Imperial’s troubles stem from a high-flying period in the mid- to late 1980s when the thrift, led by former chief executive Kenneth Thygerson, became a key member of a group of buyers of high-risk, high-yield junk bonds. That group was assembled by Drexel Burnham Lambert, the Wall Street firm that collapsed last week.

As of Dec. 31, Imperial held slightly more than $1 billion in junk bonds, making it the second-largest holder of junk bonds among thrifts nationwide. Thrifts are required under federal law to sell all their junk bond holdings by 1994.

The bonds, issued by companies with low credit ratings, pay investors higher yields to compensate for their higher risk. Junk bonds have tumbled in value in the last six months, largely because of recession fears and troubles with junk-bond issuers such as Robert Campeau’s retail chains. Imperial also suffered from problem car and mobile home loans.

“It was the Imperial touch,” said Michael Abrahams, analyst in Los Angeles with Bateman Eichler, Hill Richards. “Everything they touched was junk to begin with. I think that, as time goes by, (lawsuits) will dig deeper and we’ll find even more problems.”

Mercury’s seizure, by contrast, was ironic. The thrift for years was viewed as the archetypal S&L; that operated conservatively in an era when renegade S&L; operators gambled taxpayer-insured deposits on such things as risky real estate projects and junk bonds.

That changed when Mercury, which has $2.15 billion in assets, lost $13.8 million in 1988 and $5.4 million in the first nine months of last year, mainly from accounting adjustments it was forced to take because people paid off adjustable-rate mortgages sooner than expected. Mercury had been claiming future profits by assuming that those mortgages would have a much longer life.

Mercury also had problems with two large troubled loans that financed hotels in Irvine and in Tulsa, Okla. Last month, it began foreclosure proceedings on the loans, which total $60.7 million.

The seizure of Mercury is an especially humbling blow for Leonard Shane, 67, who served as chairman since the S&L; was founded 26 years ago. Shane is former president of the thrift industry’s main trade group, the U.S. League of Savings Institutions, and was often outspoken about wayward thrifts.

He declined to comment specifically on the government’s action, but confirmed that he will serve as a consultant to regulators on Mercury. Earlier this month, Shane stepped aside from managing the firm’s day-to-day operations.

Imperial and Mercury had sought unsuccessfully to persuade regulators that they could turn around, and publicly expressed confidence that they could recover. Mercury had been shopped around by investment bankers for some time, but no buyer was found.

Regulators said that although both institutions have been losing money, they hope to whip them into shape and sell them.

Mercury is only $100,000 in the red under the common definition of insolvency, which is assets minus liabilities. But under new, restrictive definitions, Mercury has a negative $33.3 million in tangible capital, the basic cash available to act as a last resort against losses.

“Mercury is not deeply insolvent, not way in the hole like so many other S&Ls;,” said Janis Smith, a spokeswoman for the Office of Thrift Supervision. “There’s a good deal of marketability there, and the conservator will preserve what can be preserved.”

But, Smith said, Mercury also had suffered serious losses that were likely to continue, driving it further into debt and putting the deposit insurance fund at risk.

Imperial had $9.7 billion in assets at the end of 1989. Its parent firm, Imperial Corp. of America, was not seized.

Times staff writer Greg Johnson in San Diego contributed to this story.