Lincoln S&L; Still Big Loser: 2nd Quarter Off by $163 Million
Nearly 18 months after federal regulators seized Lincoln Savings & Loan, the thrift is continuing to lose big bucks. In the second quarter, the insolvent thrift posted a second-quarter net loss of $163.9 million.
The loss, revealed in a quarterly report thrift regulators released Thursday, puts the S&L;’s loss at $327.3 million for the first six months this year ended June 30.
Since federal regulators seized the thrift in April, 1989, Lincoln has reported losses of $1.3 billion, most of it attributed to write-downs they say prior owners should have made.
Lincoln’s deteriorating condition raises questions about how much its failure may ultimately cost taxpayers and why the government has been unable to sell, close or otherwise resolve problems of the troubled institution.
Regulators, who refused to comment Thursday, have said the thrift’s collapse will cost U.S. taxpayers more than $2 billion, making it one of the most expensive thrift failures ever. Its collapse has been attributed to risky junk bond investments and real estate projects.
The failure has prompted numerous criminal investigations and civil lawsuits. Charles H. Keating Jr., former chairman of American Continental Corp., Lincoln’s parent company, was indicted last week on 42 counts of securities fraud stemming from the thrift’s failure. He is being held on $5-million bail in Los Angeles County Jail.
The quarterly report shows that Lincoln, whose 29 branches are still open, is paying $50 million more to cover deposit rates than it collects from the rates it charges on its loans. In addition, regulators have listed $924 million in mainly construction and land loans as slow-paying, overdue loans and have said $626.9 million more in similar assets simply aren’t paying.
The losses, industry experts said, may simply be part of running what was once an institution with $5.3 billion in assets, invested mostly in risky projects such as undeveloped Arizona land and junk bonds. Lincoln’s assets at the end of June were $2.6 billion.
“If we think the losses are eventually going to be $2 billion, then what we’re seeing is loss recognition on the installment basis,” said Bert Ely, an Alexandria, Va., industry consultant and analyst.
For others, though, the skyrocketing losses are evidence of the government’s ineptitude at running businesses.
“They just keep writing down assets. That’s how they keep losing money,” said James J. Feder, lead counsel for American Continental in Phoenix.
Feder, who is in charge of the company’s legal affairs while it is in bankruptcy, said regulators have been compromising troubled loans, settling for less than their true value and writing off the balance as a loss.
In another matter, Feder said the firm has reached a general agreement with regulators and creditors on a public statement that would disclose how American Continental would be liquidated. A federal judge in Phoenix indicated this week that he would approve the statement.
Once the statement goes out, U.S. District Judge Richard M. Bilby then must approve the liquidation plan itself.
American Continental is expected to object to certain provisions in the liquidation plan, but Feder predicted that Bilby would approve a plan by the end of November.
American Continental liquidation value is no more than $30 million, Feder estimated. Most of that would come from recoveries on lawsuits the company would file, including one against lawyers and accountants for $12 million in fees paid during the year before the company’s collapse.
In a related ruling Wednesday, Bilby approved a partial settlement in lawsuits filed by small investors of American Continental debt securities. Settlements totaling $24.3 million will be paid by two law firms accused of helping Keating deceive investors about the company’s financial condition. The amount represents less than 10% of the more than $250 million investors lost.
* RELATED STORY: D5
