Keating Challenges U.S. Estimate of Loss : Lincoln Savings: Ex-chairman of failed S&L; labels government’s 50% writedown as ‘absurd.’

Charles Keating, the former chairman of the failed Lincoln Savings and Loan Assn., today bitterly challenged government estimates of losses at the thrift as inflated and arbitrary.

He called a 50% government writedown estimate on the company’s headquarters in Arizona “absurd.”

Keating, in his bid to regain Lincoln from federal regulators who seized it last April, said the government wrote down the value of Lincoln assets to make the thrift’s loss appear larger.

Federal regulators who took control of the Irvine, Calif., thrift have said that protecting Lincoln’s depositors from losses could cost taxpayers as much as $2.5 billion.

“I have been hearing this number in the media throughout the world since the takeover,” Keating told U.S. District Judge Stanley Sporkin at a pretrial hearing on a government motion to dismiss Keating’s suit for control of Lincoln.

John Lundin, a Keating attorney, said the government’s estimate of Lincoln’s loan losses was “done arbitrarily” and arrived at shortly after regulators took control of the thrift when it was determined to be operating in an “unsafe and unsound” manner.

Keating said federal regulators, after taking over Lincoln, determined that all of the thrift’s $1.4 billion mortgage-backed loan portfolio was in default. Regulators tallied a loss of $703.3 million from these loans.

Lincoln’s books, Keating said, showed that only about 3% of the loans had defaulted and would not be repaid.

Regulators also said the thrift’s $71.1-million portfolio of commercial loans, backed by collateral other than mortgages, had soured and represented an estimated loss of about $31.5 million. Keating said that less than 3% of these loans were in default.

Also cited was a 50% writedown on an $11-million office building Lincoln purchased in the “high-rent district” of Phoenix.

“These numbers are absurd,” Keating said.

When asked by Sporkin how much the building should be sold for, Keating replied, “I’m saying it isn’t $6 million or $5 million.”

Because of a depressed real estate market in Arizona, Keating said the building “may be a little less than when we bought it.”

“The testimony here is, this is a pretty shoddy piece of work,” Sporkin said.

James Murphy, an attorney representing the Office of Thrift Supervision, said he plans to present witnesses to support the government’s figures.

In another challenge of the government’s takeover, Keating’s attorneys produced a memo from Mark Randall, the federal managing agent at Lincoln, to his superiors questioning the competence of Roger Clark, hired by regulators to serve as the thrift’s chief executive officer.

The memo, dated July 19, 1989, cites Clark’s “inaction” and “questionable judgment” while operating the thrift under receivership. Clark now serves as Lincoln’s chief financial officer.