Great American’s Troubles Cast a Shadow Over S.D.
For many San Diegans, the recent headlines on the financial problems of Great American Bank had an unpleasantly familiar ring.
In a city that has long suffered from a civic inferiority complex, a feeling of being a poor second cousin to the world-class clout of Los Angeles and the allure of San Francisco, the news that San Diego-based Great American--the nation’s eighth-largest thrift--was seeking outside help in raising capital to meet federal standards seemed like a new chapter in an old story.
Indeed, in recent years, San Diego has seen some of its most prominent local businesses--among them, Pacific Southwest Airlines, Oak Industries, the Wickes Corp. and Signal Companies--either leave town or be swallowed up by larger corporations amid the merger craze of the ‘80s. With San Diego’s political and business leaders already battling vociferously to prevent San Diego Gas & Electric Co. from being added to that list, the possibility that Great American might be acquired by outside investors produced hard swallows from City Hall to corporate board rooms.
Though Great American’s future remains uncertain, its recent actions have been tantamount to posting a “for sale” sign on the San Diego institution. That possibility, only one of several that could become reality by mid-spring, has generated glum speculation about the possible loss of a century-old major corporate citizen ingrained in virtually every facet of San Diego life.
Inevitably, similar questions are posed about the man atop the Great American empire: Gordon Luce, a 64-year-old native San Diegan who over the past 20 years built the bank from a four-branch local operation to a 214-office giant with assets of $16.1 billion.
Few have so legitimate a claim today to the title of “Mr. San Diego” as Luce, whose name has long been identified with the highest echelons of the city’s political, business and social circles. A tall, slender, gray-haired man with a self-effacing modesty and a ready smile, Luce has been a confidant of one President and a friend to another; a prolific fund-raiser for myriad causes ranging from politics and the arts to health care and education; a man who, as San Diego Mayor Maureen O’Connor puts it, “has been there every time-- every time--his community needed him.”
While Luce says that “it is a little premature” to write an unhappy ending to the Great American story, the thrift’s problems undeniably threaten to severely undercut the personal power and prestige that he developed over the past two decades as the bank’s chief executive officer. By parlaying his shrewd instincts, political connections and his own bank’s meteoric rise, Luce has helped set policy throughout the entire savings and loan industry, and today is widely recognized as one of its powerhouses.
“If you were to name the five most influential people in the industry, Luce would be one,” said Barry M. Rubens, chief executive at California Research Corp., a Santa Monica-based savings and loan and bank consulting firm.
Financial Woes
Great American’s current financial quagmire is a direct result of its 1986 acquisition of Home Federal Savings of Tucson, a purchase that brought on a harvest of woe in the form of bad loans stemming from economic problems and severe overbuilding of Arizona real estate. Forced to write down the loans’ value to reflect the precipitous drop in real estate prices, Great American last year suffered a $123.9-million loss.
The losses have reduced Great American’s capital level to the point that, as of Dec. 31, Great American’s capital was deficient in all three of the tough new capital adequacy tests applied by regulators in the aftermath of last summer’s $160-billion rescue bill for the nation’s troubled savings and loan industry. Then last week, Great American’s auditor, Deloitte & Touche, decided it wanted to extend its audit of the S&L;’s 1989 loan-loss provision, a review that will probably result in deeper losses. Federal regulators in the Office of Thrift Supervision are also reviewing Great American’s loans.
With Arizona’s real estate and loan values continuing to drop, industry analysts openly question Great American’s ability to survive. In announcing that it hired an outside investment banking firm to help it raise capital, Great American all but admitted that its ownership may soon change. Some observers predict a forced merger with another savings and loan or with a bank such as Wells Fargo.
Within banking and business circles, some suggest that Great American’s woes were unavoidable, that the sinkhole that the Arizona financial scene has become could not have been foreseen. Others argue that Luce’s outside political activities may have caused him to, as one termed it, take his “hands off the ball” at a critical juncture. And still others pointed to what they say is Luce’s hands-off management style and tendency to delegate authority.
Luce vehemently denies both assertions, saying he has devoted virtually all of his time to the S&L; over the last five years. Major decisions at Great American are made, he said, only after input from executive committees.
As Great American searches for a solution to its financial morass, various what-if scenarios--most of them unpleasant to contemplate--have been discussed among the city’s political and civic leaders. In particular, one question that is drawing increasingly nervous speculation is what impact would be felt by San Diego if Great American were ultimately acquired by outside interests.
The possibility of a takeover has spawned hand-wringing among some city leaders who fret that it could reinforce the city’s branch-town image. In the past year, of the county’s 15 largest publicly held businesses, eight have either left town, been taken over or face the threat of acquisition.
Concern on that score, however, is a minority viewpoint, as Great American’s uncertain future has not aroused the same kind of passions spawned by the proposed merger of SDG&E; with Southern California Edison.
“The city’s identity or pride isn’t wrapped up as much with a bank--even one as big or important as Great American--as it is with a utility that has the city’s name in its title,” O’Connor said. “That doesn’t mean there’s not concern. It’s just on a different level.”
For most San Diegans, concern over Great American’s corporate fate probably begins and ends with questions over whether the bank’s woes endanger its depositors’ accounts, which it clearly does not, thanks to federal deposit insurance. “If Great American got bought and its name changed, I don’t think it would mean a damn thing to the average person,” former Mayor Roger Hedgecock said.
But if a change in Great American’s corporate structure would not rank as a civic trauma, a takeover could create a significant void with far-reaching ramifications.
Throughout its history, Great American has been one of San Diego’s most generous corporate citizens that annually contributes slightly less than $1 million to a wide range of social and civic programs. The bank’s list of local beneficiaries--complemented by, in many cases, Luce’s personal contributions--includes the Scripps Clinic and Research Foundation, the Urban League, the Greater San Diego Sports Assn. and numerous local cultural organizations, as typified by last year’s $50,000 donation to the Soviet Arts Festival. In the late 1980s, Great American sponsored a much heralded education program aimed at increasing attendance among junior high students--”Miss School, Miss Out”--that was honored at a White House ceremony as one of the nation’s best private-sector projects.
Steven Brezzo, director of the San Diego Museum of Art, emphasized that, given San Diego’s scarcity of corporate headquarters, Great American “would be very hard to match or replace” in terms of its continuing commitment to the arts.
It is a measure of the depths of Great American’s problems that some openly question, not only whether the thrift will be in a position to continue its charitable-giving, but also whether Luce himself will continue to head the institution.
“It’s almost as American as apple pie, baseball and motherhood that you change managers, the guy at the top, when the team doesn’t have a winning record,” said Peter Davis, president of the Bank of Commerce of San Diego.
If such a change was made, it would be one of the few blemishes on Luce’s family history since his ancestors arrived in San Diego County more than a century ago. Luce’s grandfather, Moses Luce, was a pioneer lawyer, and his father, Edgar, was a state senator, Superior Court judge and co-founder of one of San Diego’s oldest and most prestigious law firms, Luce Forward Hamilton & Scripps.
Luce was introduced to banking at San Diego’s Home Federal Savings.
During his 10-year tenure at Home Fed, Luce rose to become senior vice president of marketing. Luce soon became Home Fed’s major political operative, arranging campaign contributions and working for local Republican candidates. Using his growing personal prestige and that of Home Fed, Luce developed a reputation as one of the city’s most important and irresistible fund-raisers.
“He has been chairman of half of the major fund-raising activities in town. He had a lot of chits because he has done a lot of things for people, businesswise and socially,” said Norman Roberts, a longtime friend and fellow Republican activist. “If you get a call from Gordon and he asks you for money, it’s difficult to say no because you know someday you’re going to be calling him.”
That fund-raising ability figured significantly in Luce getting the title of San Diego County treasurer of Barry Goldwater’s 1964 presidential campaign. And it was during one fund-raiser for Goldwater in La Jolla that Luce was to meet the man with whom he was to become so closely identified: Ronald Reagan.
After the Goldwater debacle, Luce was one of a handful of key Southern California businessmen who took an interest in Reagan’s political career and who encouraged him to run for California governor. Luce followed Reagan to Sacramento in 1966, becoming Secretary for Business and Transportation, quickly establishing himself, along with Casper Weinberger, as one of Reagan’s most trusted lieutenants.
“I attended every Cabinet meeting in my six years in Sacramento and had the opportunity to watch all the players, and it was clear to everybody that Luce and Casper Weinberger” had Reagan’s ear most often, said Edwin Gray, then a Reagan press secretary who would later become a Great American executive and still later Federal Home Loan Bank Board chairman.
But after three years in Sacramento, Luce yearned to return to San Diego and to business. Eleven years later, when Reagan became President, that preference for the private sector caused Luce to gently deflect inquiries about his interest in either a Cabinet-level post or ambassadorship.
“They called me the Reluctant One,” Luce recalled, chuckling. “I would always say, ‘Maybe next year.’ Then when next year came, I’d say, ‘No, I’m still too busy.’ ”
After leaving Sacramento in 1969, Luce became chief executive of San Diego Federal, which in the 1980s would be renamed Great American Bank.
Luce wasted little time putting his imprint on San Diego Federal, embarking on statewide expansion to capitalize on California’s rapid population growth. The success of the plan, Luce realized, would depend largely on creating a standardized image for the S&L;’s branches, akin to that of McDonald’s and Holiday Inns. In keeping with that strategy, Great American adopted a coordinated style for all of the branch architecture, uniforms and employee training, Luce said.
Luce also put Great American at the vanguard of the automated teller machine revolution, claiming to be the first California financial institution to install a statewide ATM network.
Great American also earned high marks for being the first San Diego County S&L; to establish branches in Southeast San Diego and San Ysidro, two low-income areas of San Diego that at the time suffered from redlining, the practice of refusing loans in geographically prescribed areas.
But Luce’s rapid growth strategy--the S&L;’s assets grew from $4.4 billion in 1982 to $16.1 billion as of Dec. 31--ultimately landed Great American in trouble. Much of that growth was accomplished by acquiring 16 outside thrifts, and one of the acquisitions, Home Federal of Tucson, has turned out to be a financial black hole that could cost Great American its independence.
Great American is by no means alone in its Arizona misery. There are only three S&Ls; left in Arizona that have not been taken over by regulators, said William Ferguson, a S&L; consultant based in Irving, Tex. Other large financial institutions, including First Interstate Bank, have stumbled there as well. U.S. Postmaster Gen. Anthony M. Frank, who from 1971 to 1988 was chief executive of First Nationwide Savings in San Francisco, and who preceded Luce as president of the state S&L; league, said even banks and thrifts using the most conservative lending practices have stumbled badly in Arizona.
Despite his appraisal of Luce being “likable, a professional manager and certainly the most astute politically on the Republican side that the industry has,” Frank said Luce ultimately has to accept responsibility for the Arizona problems.
“I would say Luce took his hands off the ball,” Frank said. “The S&L; business is, all things being said, a detail business. When you start to be too much of an elder statesman, then you start turning details over to other people and it justs seems that that doesn’t work out very well.”
