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Debt-Ridden Imperial, Mercury Seized by U.S. Regulators

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From Associated Press

Federal regulators on Friday seized two California savings and loans, including Imperial Savings Assn. of San Diego--the industry’s second-largest holder of junk bonds--and Mercury Savings & Loan Assn. of Huntington Beach.

The Treasury Department’s Office of Thrift Supervision turned over both institutions to the Resolution Trust Corp., a federal agency created in August to dispose of insolvent S&Ls.; In all, the agency seized 12 S&Ls; Friday.

At the end of the year, Imperial had $9.7 billion in assets, the thrift office said. High-yield, high-risk bonds represented more than 10% of its portfolio. The institution was $60.1 million in the red, regulators said.

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Mercury Savings & Loan had $2.16 billion in assets and was $33 million in the red, the thrift office said.

Mercury operated more traditionally than Imperial, but had invested in several large hotel projects that went sour.

Like several other large institutions before it, Imperial ran afoul of provisions in last summer’s savings and loan bill requiring it to value its securities at market value rather than the purchase price.

It was forced to recognize $200 million in junk-bond losses in the last quarter of 1989 and had indicated that it expected to take a writedown of at least $50 million more in the current quarter.

At the end of September, Imperial was the 16th-largest S&L; in the nation and had the second-biggest junk-bond portfolio, behind only Columbia Savings & Loan Assn. of Beverly Hills, according to Sheshunoff Information Services.

Of the top four junk-bond holders in the S&L; business, only Columbia, with $4.1 billion in the bonds, remains out of the government’s control. Analysts speculate, however, that it may be one of the next takeovers. Its debt has been downgraded by Moody’s Investors Service and regulators have restricted its activities since November.

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“I think that Columbia has to be real close to the margin,” said Bert Ely, an Alexandria, Va., financial institutions analyst. “I wouldn’t be surprised to see Columbia popped (into the RTC) fairly soon.”

CenTrust Bank of Miami, No. 3 in junk bonds, was seized earlier this month, and City Federal Savings Bank of Bedminster, N.J., No. 4, toppled in December.

The seizures make the government, through the RTC, the largest owner of junk bonds.

Imperial, the chief subsidiary of Imperial Corp. of America, had 80 branch offices in California, which will remain open during normal business hours. It had $7.6 billion in deposits in 387,000 accounts, the RTC said. All accounts up to the $100,000 federal insurance limit are guaranteed.

Founded in 1950, Imperial grew as it helped finance the post-World War II housing boom in California. However, under former Chief Executive Kenneth J. Thygerson and investor Victor Goulet, it took advantage of California’s liberal regulations to venture into risky investments. It became a major customer of indicted financier Michael Milken, who was head of Drexel Burnham Lambert Inc.’s junk-bond operation in Beverly Hills.

Junk bonds have declined 15% to 20% on average since the summer. Earlier this month, Drexel Burnham’s parent company sought protection under federal bankruptcy laws.

Thygerson, who had joined the thrift in 1985, resigned last July. His successors were trying to save the institution by shrinking it to half its peak size of $12 billion and returning it to more traditional practices.

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But the thrift office said in a statement, “There was no possibility of replenishing capital without federal assistance.”

In addition to junk bonds, Imperial had purchased a troubled portfolio of car loans from Grand Wilshire Finance Corp., a now-bankrupt Los Angeles-area firm. It was also suffering from problem loans it made to a now-bankrupt New Jersey firm that sold Yugo automobile dealerships in the United States.

Among the other S&Ls; seized Friday was First Atlantic Savings and Loan Assn. of Plainfield, N.J., with $1.3 billion in assets.

The RTC has more than 330 S&Ls; under its control with about $180 billion in assets.

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