Columbia S&L; Not Expected to Be Seized Immediately : Thrifts: Regulators have yet to determine how to handle the firm’s junk bond holdings, but officials say shareholders will lose everything.
Columbia Savings & Loan, rendered insolvent by huge losses, has little chance of surviving as an independent institution but a government takeover is not imminent, thrift industry sources said Monday.
Industry officials said it is unlikely that Columbia will be seized by the federal government until after regulators decide what to do with the firm’s huge portfolio of junk bonds, which are risky, high-yield corporate debt securities. That process could take several weeks or even months.
An effort to sell the bonds, possibly to a single buyer, is being spearheaded by First Boston Corp., the New York investment banking firm, and Thomas Spiegel, who resigned as Columbia’s chief executive earlier this year.
A number of investors are believed to be interested in the bond portfolio, including well-known private investors as well as publicly held financial institutions. Neither First Boston nor Thomas Spiegel would comment on their plans.
In any event, Columbia’s shareholders probably will lose their entire investment. The stock closed Monday at about 40 cents a share, down 72 cents in New York Stock Exchange trading. Most of Columbia’s stock is owned by the Spiegel family, led by Abraham Spiegel, 83, the company’s current chairman and father of Thomas, 43. The elder Spiegel could not be reached for comment.
Columbia is the latest major casualty of the recent collapse in the junk bond market thathas also hit such other financial firms as Drexel Burnham Lambert and San Diego-based Imperial Corp. of America. Columbia became at one point the nation’s most profitable thrift, largely through profits on the high-yield securities bought through Drexel andjunk bond king Michael Milken, who had close ties to the Spiegels.
Columbia, based in Beverly Hills, announced Sunday that its capital had been wiped out by about $575 million in losses in the fourth quarter of last year and first two months of this year. The red ink resulted primarily from government-mandated writeoffs and serious credit problems in its junk bond portfolio.
Officially, Columbia says it has enough viable assets that, given time, could lead the firm back to financial health. “Notwithstanding our current financial condition, we believe Columbia has the resources to reach full compliance with capital standards mandated by Congress before the Dec. 31, 1994, deadline,” Columbia Chief Executive Edward G. Harshfield said in a statement Sunday.
But Harshfield was not available for comment Monday, and very few seemed to take his statement at face value. Harshfield is a former banker from Citicorp who took over as CEO last month.
A more realistic hope, one industry official said, is that Columbia Savings will make enough through the sale of its junk bonds that the American taxpayer, at least, will be spared the expense of bailing out Columbia’s losses. The thrift’s liabilities currently exceed its assets by $121 million.
Columbia’s dilemma seems certain to accelerate a heated--if arcane--debate over the methods of accounting that have caused Columbia Savings huge paper losses in recent months and led to the evaporation of its capital.
Last year’s legislation to bail out the S&L; industry contained a provision that forced all thrifts to sell their junk bond investments within five years. That, in turn, forced the thrifts to immediately recognize unrealized market losses on the bonds because they could no longer count on holding them until maturity.
Even the regulatory establishment is known to be sympathetic to Columbia’s plight, but regulators say they are merely following the will of Congress. “I think this is terribly unfair and I say that out of no great love for the Spiegels,” one former high-level Washington regulator said.
The Spiegels’ dilemma does not generate much sympathy with industry traditionalists, who never liked Columbia’s controversial--but once legal--practice of investing depositors’ money in high-yield bonds. S&Ls; have traditionally invested in real estate loans, but that was only a small part of Columbia’s investment portfolio.
Though not the only thrift in the nation to invest in junk bonds, Columbia Savings had the largest holdings. Its high-yield bond portfolio is valued at more $3 billion.
Other thrifts that put money in junk bonds included Imperial Savings in San Diego and CenTrust Savings in Miami, which together owned about $1.7 billion in junk bonds at the end of 1989. Both financial institutions have been seized by regulators and are presently being operated as wards of the government.
Any sale of Columbia’s junk bonds must receive the approval of several regulatory bureaucracies, and it is believed that well-known buyers with blue-chip reputations have the best chance of getting their purchases approved.
COLUMBIA’S JUNK BOND PORTFOLIO
Cost Market value Corporation (thousands) (thousands) RJR Nabisco Holdings Corp. $114,960 $117,247 SCI Holdings 111,601 115,240 Memorex Telex Corp. 109,217 45,320 GACC 106,437 93,546 E-II Holdings Inc. 97,962 58,310 Warnaco Inc. 93,985 90,487 McCaw Cellular Communications 86,382 90,127 Inc. Eastern Air Lines Inc. 82,759 68,148 Revlon Group Inc. 80,556 62,962 Trans World Airlines Inc. 76,262 68,242 Motel 6, L.P. 74,351 96,335 Harcourt Brace 73,769 37,024 Brace Jovanovich Inc. CNC Holding Corp. 65,376 54,054 Hillsborough Holdings Corp. 65,325 13,237 Levitz Furniture Corp. 63,849 49,848 Brooke Partners L.P. 62,641 39,778 Pacific Lumber Co. 57,300 50,824 Charter Medical Corp. 55,232 52,472 Zale Corp. 54,685 50,863 Kendall Co. 52,210 48,334 Rex-PT Holdings Inc. 52,099 47,104 Telemundo Group Inc. 49,824 47,988 Healthtrust Inc. 49,242 50,464 EnviroSource Inc. 46,044 45,555 Occidental Petroleum Corp. 44,360 43,600 Cooke Media Group Inc. 43,830 33,215 Air & Water 43,578 50,778 Technologies Corp. Epic Healthcare Group Inc. 40,423 40,400 Reliance Group Holdings Inc. 40,239 26,884 Itel Corp. 40,150 37,855 Banner Industries Inc. 39,387 42,070 MGM/UA Communications Co. 38,602 36,151 TOTAL $2,112,637 $1,804,462
JUNK BOND HOLDINGS BY INDUSTRY
Industry: % of total Auto/Truck manufacturers 1% and metal Banking and insurance 4 Broadcasting and cable 13 television Building and real 3 estate development Electronics and telecommunications 9 Financial services 2 Food and beverage/ 14 Consumer products Health care 6 Hotels, motels, leisure 4 Motion pictures and 5 publishing Oil, gas, minerals 2 and chemicals Other manufacturing 14 Forest products, 3 printing and containers Retailers 11 Supermarkets 3 Transportation and 6 other services TOTAL 100%
Data is as of Dec. 31, 1989
Source: Columbia S&L; 10-K
