Columbia S&L; Chief Hits Predecessor’s Judgment : Thrifts: Edward Harshfield tells shareholders that the insolvent institution’s troubles date back long before the collapse of junk bonds.
In an unusually scathing speech, the new head of Columbia Savings & Loan on Tuesday ripped the regime of former Chief Executive Thomas Spiegel, saying Spiegel and other executives placed the insolvent thrift “in harm’s way” by their actions over the past four years.
“This is not hindsight. It’s not Monday morning quarterbacking. The evidence was as visible then as it is now,” said Edward G. Harshfield, who took over as Columbia’s chief executive three months ago.
Harshfield’s speech to the Beverly Hills thrift’s annual shareholders meeting clearly took Columbia stockholders and employees by surprise. It was the first public sign that a schism has developed between Harshfield and the controversial Spiegel, who left as Columbia’s chief executive on Dec. 31 amid growing losses caused by problems in the thrift’s huge portfolio of risky, high-yield junk bonds. Those bonds, worth about $3 billion now, have lost about $1 billion in value over the past year and now are for sale. The thrift is now in danger of being seized by regulators.
Harshfield’s speech also was unusual if for no other reason than that Spiegel and his family still control Columbia, although their grip has weakened because regulators are now heavily involved in decision-making. Spiegel sat in the front row during the meeting but did not speak. His father, Abraham, presided over the meeting as chairman.
Harshfield, who did not mention Thomas Spiegel by name, took issue with the conventional explanation that Columbia’s problems are primarily due to accounting changes stemming from the requirement in last year’s thrift bailout law that thrifts must sell their junk bonds by 1994.
Because most of the junk bonds mature after 1994, accountants are requiring Columbia and other thrifts to constantly revalue their bonds to current market prices. Because the junk bond market has collapsed over the past year, Columbia has had to realize huge losses on the value of its bonds.
But Harshfield said Columbia’s problems were emerging as far back as late 1986, long before the junk bond market collapsed and Congress required thrifts to sell their bonds. Earnings, he noted, slipped steadily from $193 million in 1986 to $119 million in 1987, $65 million in 1988 and finally a huge $591-million loss last year.
Provisions for loan losses more than quadrupled in the same period while expenses doubled, Harshfield said. Columbia’s junk bonds clearly declined in value over the years, and the losses were compounded by problems with its commercial real estate projects.
Even if Columbia didn’t have to continually revalue its bonds to their market value, many of the issuers defaulted or Columbia suffered other actual losses on the portfolio, Harshfield said. The need to recognize those losses would have wiped out virtually all of Columbia’s shareholder value anyway, Harshfield argued.
“The bottom line is that all but about $17 million in stockholder equity was wiped out, not by government action, but by the business judgments and management actions over those several years,” Harshfield said. He estimated that only 3% of the loss in stockholder value can be blamed on the newer accounting methods.
Although he remained jovial at the meeting, Spiegel clearly was bothered by the remarks and defended his 13-year tenure.
“Ed has been here for three months. He has his perspective of the situation being here three months. I have my perspective being here 13 years,” Spiegel said after the meeting.
