Democrats Blast Lucrative Pay at Failed O.C. Thrifts

Congressional Democrats attacked the Bush Administration on Friday for keeping top executives of failed savings and loans on the payroll--at six-figure salaries in some cases--after seizing their insolvent institutions.

According to figures presented to a congressional task force, 211 of the 351 savings and loan firms in government hands as of April had retained their highest-paid officer in the same position. Thirty-six of them were receiving higher salaries than they had before their institutions failed.

Task force members cited recent press reports that six executives who presided over the financial decline of two Orange County thrifts, Mercury Savings and Western Empire Savings, were still receiving lucrative salaries months after the thrifts had been taken over. The current status of the six executives could not be determined Friday.

“Why,” asked Rep. Bruce F. Vento (D-Minn.), chairman of the task force, “is the RTC continuing these mega-dollar salaries for a work product that at best is mediocre and at worst is a proven failure?”

Officials with the Resolution Trust Corp., the government agency established to supervise the S&L; cleanup, acknowledged that they have been forced in some cases to abide by employment contracts and severance benefits previously awarded to executives at failed S&Ls.;

In other instances, they said, the agency voluntarily has retained former thrift officers because of their S&L; expertise and management experience.

The criticism of the RTC’s personnel policies is part of a Democratic offensive aimed at directing blame at the Bush Administration for the slow and halting pace of the bailout. According to Administration estimates, the S&L; clean-up could cost as much as $130 billion.

Responding to news reports about S&L; executives who continued to draw hefty salaries or awarded themselves large severance benefits, Vento asked the RTC last month to report on its hiring policies at seized thrifts.

On Friday, he complained that the information the agency provided was insufficient.

“What I want to know is who they are and what they are receiving,” the chairman said, banging the podium during the task force hearing. “The public has a $130-billion problem, and you are not providing the information.”

RTC Executive Director David C. Cooke said the agency cannot divulge salary information for specific thrift officers because it would violate their privacy rights.

Cooke noted that the government “doesn’t really have the authority to break employee contracts” until it acquires full ownership of a seized thrift. In the meantime, he said, the government must abide by its legal obligations, including salary and severance benefits.

In April, Mercury Savings’ former chief executive, Leonard Shane, sued the government for payment of $850,000 in retirement benefits he said he was owed by the defunct S&L.;

“I don’t think we should be paying these pensions,” Vento said, referring to Shane’s suit and similar claims pressed by other S&L; officials.

Three weeks ago, Shane said he was quitting as a $100,000-a-year consultant to the thrift because regulators who seized the institution in February haven’t used his services.

Miffed that he wasn’t being called on and embarrassed that he was getting paid for doing nothing, Shane sent a letter to the regulator managing Mercury asking that his consulting agreement be terminated.

Shane had been making about $330,000 a year but reduced his annual salary to little more than $100,000 late last year as Mercury’s financial problems grew. That reduced amount is what regulators had agreed to pay him.

Although the agency tries to avoid hiring S&L; officers it considers unprincipled or incompetent, not all executives at failed thrifts deserve to be blacklisted, said Michael Martinelli, director of the RTC’s central U.S. division.

“If a person was a bad actor in an S&L; and applies to us, we just won’t hire him,” Martinelli said. “But the vast majority of employees in these S&Ls; are not bad people.”

RTC officials said they sometimes hire S&L; executives to help manage failed thrifts, citing a shortage of people qualified to deal with the complex financial transactions involved in managing or liquidating a foundering institution.

Martinelli cited the case of Gibraltar Savings and Loan of Los Angeles. The government paid a former S&L; executive, John R. Carr of San Francisco’s First Nationwide Savings Bank, to clean up Gibraltar.

Times Staff Writer James S. Granelli in Orange County contributed to this story.