Columbia Savings Loses $575 Million : Thrifts: The Beverly Hills-based firm says the five-month loss has rendered it insolvent. The institution’s ability to remain independent is in doubt.
Columbia Savings & Loan, the maverick Beverly Hills-based financial institution whose advertisements once boasted how safe and well-run it was, announced Sunday that it suffered losses of about $575 million in a recent five-month period that wiped out its capital and rendered it insolvent.
The stunning announcement raises serious questions about Columbia Savings’ ability to survive as an independent, stockholder-owned financial institution. Other large California thrifts in similarly dire conditions have been taken over by the government recently and are being operated by regulators.
Columbia Savings has $7.77 billion in deposits and 29 offices throughout Southern California, many in high-income areas like Beverly Hills and Newport Beach. All of its deposits will continue to be insured by the government up to $100,000, meaning that insured depositors need not panic and withdraw funds for fear of losing their savings.
Columbia reported Sunday that its losses included almost $200 million in the first two months of 1990 and $379 million for the final three months of last year. The thrift’s loss for all of 1989 totaled $591 million.
Columbia blamed its losses largely on write-offs and credit deterioration in its junk bond portfolio and added that the red ink would have been worse had the firm not realized profits of more than $200 million by selling assets, including stocks and mortgage-backed securities. The company’s real estate operations also lost $61.6 million last year.
Nevertheless, Columbia Savings said in a statement that it will eventually be able to meet tougher capital requirements mandated by Congress last year as part of the massive taxpayer bailout of the savings and loan industry.
“We believe Columbia has the resources to reach full compliance with the capital standards mandated by Congress” by the Dec. 31, 1994, deadline, Columbia Savings Chief Executive Edward G. Harshfield said. He was not available for further comment.
Capital is the financial cushion of cash and other assets that financial institutions use to protect themselves against heavy losses. Until recently, Columbia was one of the best capitalized large thrifts in the nation.
The firm’s shareholders’ equity, meaning its value to its stockholders, had fallen to a minus $121 million as of the end of February, “rendering it insolvent under generally accepted accounting principles,” the company said. The company expects to report “significant” additional losses in March as part of its first-quarter earnings.
Columbia Savings had been expected to release its earnings Friday, but the news did not come until late Sunday afternoon. The delay reportedly resulted from a disagreement between the company and its outside auditor, the accounting firm of Deloitte & Touche, over the size of the write-offs.
Columbia Savings’ fall from grace has been swift and stunning for the once high-flying firm that emerged from obscurity in the early 1980s, led by a Nazi death camp survivor, Abraham Spiegel, and his son, Thomas. The Spiegel family still has voting control of Columbia’s stock, which is now worth slightly more than $1 a share.
Columbia was once a national symbol of how a savings and loan could successfully adapt to the new age of deregulation when thrifts across the country--and especially in California--were given broad leeway in investing their depositors’ money.
Under the Spiegels’ guidance, Columbia Savings became one of the fasting-growing--and most profitable--thrifts in the country by investing billions of dollars in junk bonds, which are high-risk securities issued by corporations with low credit ratings. Only a minor percentage of the deposits were invested in home mortgages, the traditional staple of the thrift industry.
Thomas Spiegel learned the high-yield securities business under the tutelage of junk bond king--and close friend--Michael Milken, whose former trading offices at Drexel Burnham Lambert were just a few blocks west on Wilshire Boulevard from Columbia’s executive offices.
At its zenith in the mid 1980s, Columbia Savings’ annual earnings approached $200 million, while Thomas Spiegel rode high, befriending important politicians, traveling by corporate jet, and enjoying record compensation packages. One year he earned $9 million, the highest pay ever enjoyed by an S&L; executive.
The first signs of serious trouble came in the fall of 1987, when Columbia posted heavy losses in the fourth quarter due to the stock market crash that October. Columbia was one of the few thrifts that invested heavily in the equities market, and it took a severe beating in the crash.
Lately, the news has been all bad as the market for junk bonds has collapsed and forced Columbia to recognize huge losses in its high-yield bond portfolio. Columbia’s junk bonds make up the vast majority of its $3.38 billion in debt securities.
Thomas Spiegel resigned as chief executive earlier this year and the corporate jet has been sold. He was replaced by Harshfield, a former banker from Citicorp. Abraham Spiegel, now 83, remains chairman.
In its statement Sunday, Columbia noted that thrifts in its condition are prohibited from any new loans or investments without regulatory approval. The firm’s lending activity is already limited to making only residential loans under $500,000.
Its statement also noted that federal law “provides that insolvency and unsafe and unsound conditions (for thrifts) . . . constitute grounds for receivership or conservatorship.” In California, two large failing thrifts, Mercury Savings in Huntington Beach and Imperial Savings in San Diego, were taken over by banking regulators in recent months after suffering heavy losses.
In an attempt to return to financial health, Columbia said that it has filed a plan with banking regulators that calls for selling its high-yield securities, a program already under way. Columbia also said it wants to shrink its assets, which now stand at about $9.25 billion, and take profits of $150 million to $250 million by selling the rest of its equity securities.
