Judge Orders U.S. to Tell Why Value of Lincoln Was Cut
A federal judge said Tuesday that regulators should explain why they slashed the estimated value of financier Charles Keating’s Lincoln Savings and Loan Assn. and other investments.
“The government says it’s $2 billion in the red, and the former operator says it’s $600 million in the black,” U.S. District Judge Stanley Sporkin said. “I’m in a quandary.”
Sporkin suggested calling in the court-appointed receiver in the case to explain the difference.
The comments came after Keating testified that Lincoln was worth $500 million to $700 million when the government seized it a year ago. The financier is trying to regain control of the Irvine thrift, which was seized by the government a year ago, along with its large real estate holdings.
James Murphy, an attorney representing the government in its defense to Keating’s lawsuit challenging the takeover, tried to dissuade the judge. He said FDIC reports on Lincoln’s status are already court records.
Sporkin’s suggestion brought broad smiles from Keating and several associates.
For months, Keating has alleged that S&L; regulators undervalued Lincoln’s investments and were grossly mismanaging them since taking over the thrift.
“Now it looks like we may start cutting through the bull and start talking real turkey,” said Robert Wurzelbacher, Keating’s son-in-law and the manager of Lincoln’s vast real estate holdings.
Last week, the General Accounting Office, an arm of Congress, raised its estimate of the 30-year cost of bailing out bankrupt thrifts from $257 billion to $300 billion. Comptroller General Charles Bowsher said the figure could climb to $400 billion or $500 billion if interest rates rise or there is a recession.
“I don’t think that that the U.S. taxpayer need take that hit, whatever the number is--$300 billion, $500 billion--under a proper structure for the industry,” Keating testified Tuesday.
That structure, according to Keating, would return S&Ls; to the deregulated status they had in 1982-85. Then federal regulators began reimposing restrictions on thrift investments.
Keating recounted how the Federal Home Loan Bank Board criticized his 1984 purchase, using federally insured deposits in Lincoln, of stock in Gulf Broadcasting Co. He said the regulators objected, even though the thrift realized a $50-million profit on the deal 15 months later.
“Their criticism,” he said, “was that we might not have made it (the profit). We felt we had no downside. There was a feeding frenzy for media properties at that time. I thought we could have ended up with a $400-million gain. That was later proven out by the subsequent liquidation of Gulf’s assets.”
Keating said Lincoln settled for the $50-million profit because of regulators’ resistance to its participation in what was viewed by some as a hostile takeover attempt against Gulf.
As an example of the government undervaluing Lincoln assets, Keating pointed to the luxurious Phoenician Resort that, using the thrift’s funds, he built outside Phoenix at a price tag of $275 million. Lincoln later sold a 45% interest in the Phoenician and another hotel in Phoenix to Kuwait for $170 million.
Keating estimated that Lincoln’s interest in hotel is worth $190 million, almost double $99-million asset value listed by government regulators on their books.
“It’s a complete misunderstanding of value to write that hotel down,” he said. “Resorts are a highly salable commodity in the world today. It just hurts me. I think they’re going to give it away.”
