For Sale: Used S&Ls;, Including Lincoln
Lincoln Savings & Loan, the Irvine-based thrift that has become a symbol of the nation’s savings and loan debacle, was put up for sale Friday by federal authorities.
Once owned by Charles H. Keating Jr., Lincoln was one of 18 failed savings and loans put on the block by the federal Resolution Trust Corp., the agency formed last year to clean up the S&L; mess. Also put up for sale was Imperial Federal Savings Assn. in San Diego, the largest failed thrift in the state.
The failure of Lincoln, seized by regulators on April 14, 1989, is expected to cost taxpayers more than $2 billion, which could make it the most expensive S&L; failure ever. The RTC on Friday said Lincoln has $2.7 billion in assets and $2.4 billion in deposits in its 29 branches. Lincoln has continued to post huge losses, losing $327.3 million in the first six months of the year.
Lincoln, Imperial and the other 16 thrifts are being sold thanks to a loophole in last year’s thrift bailout bill. It allows the government to borrow up to $18.8 billion to keep the bailout from stalling.
Congress adjourned last weekend without providing more money for the cleanup. Federal regulators had been planning to sell or close 192 failed S&Ls;, with assets valued at $119 billion, over the next six months.
Both Lincoln and Imperial are expected to be sold in either January or February, an RTC executive said. Most deals the RTC is doing now involved only the sale of branches, deposits and a minimum of assets, typically low-risk home loans. In recent months, the main bidders for large failed thrifts in the west have been two giant California banks, BankAmerica Corp. in San Francisco and Security Pacific Corp. in Los Angeles.
Lincoln probably has become the best-known failed thrift in the nation. Keating, who faces numerous criminal and civil charges, used the thrift to build vast real estate and resort projects. He also battled with regulators, who argued that the thrift was a time bomb waiting to explode. Such politicians as Sen. Alan Cranston (D-Calif.) have been criticized for ties to Keating.
Imperial, which has 78 offices in California, was the nation’s 16th largest S&L; when it was seized on Feb. 23 and severed from its parent firm, Imperial Corp. of America. Regulators linked Imperial’s failure to the S&L;’s troubled junk bond holdings, bought largely through the collapsed Drexel Burnham Lambert investment bank, and losses in consumer loans, especially auto loans.
During 1989, Imperial held about $1.5 billion in junk bonds, making it the second largest holder of junk bonds among the nation’s thrifts. The S&L; held slightly more than $1 billion in junk bonds when seized, and now has about $700 million in junk bonds, according to Imperial spokesman KennUlrich. The RTC said Imperial has $7.9 billion in assets.
Imperial has been linked in shareholder suits to an alleged “daisy chain” that involved Imperial, Drexel and various clients of Drexel. The suits allege that former Drexel junk-bond financier Michael Milken orchestrated junk-bond deals for Imperial to pump up fees for Drexel.
The S&L;’s financial woes were driven by a decision to bolster Imperial’s profit margins by entering non-traditional and risky businesses such as junk bonds and consumer lending. The strategy worked for a while, but Imperial lacked the expertise to manage the troubled consumer loan portfolio. Imperial’s troubles were compounded when the market for junk bonds fell apart in 1989.
Imperial entered non-traditional businesses during the mid-1980s under the leadership of Ken Thygerson, a former banking industry regulator who once acknowledged that Imperial’s non-traditional business ventures were “strange and mysterious things” to most S&L; executives.
THE LINCOLN SAVINGS SAGA (Southland Edition) 1926: Lincoln Savings & Loan receives its California charter.
1976: Charles H. Keating Jr. moves to Phoenix from Cincinnati to take over Continental Homes of Arizona from parent company, American Financial Corp., later known as American Continental Corp.
1979: Keating settles with Securities and Exchange Commission after being accused of making insider bank loans totaling $14 million while at AFC.
1984: American Continental acquires Lincoln Savings & Loan for $51 million, moving the S&L; out of the home-mortgage business and into speculative real estate and junk bond investments.
1985: Keating opposes regulations imposed by the Federal Home Loan Bank Board limiting the amount of direct investments S&Ls; make in speculative real estate and other ventures.
1986: Federal and state regulators begin examination of Lincoln’s books. Federal regulators contend that Lincoln failed to report losses. Keating says regulators are harassing Lincoln.
1987: Bank board alerts SEC of possible securities violations. Federal regulators in San Francisco recommend a federal seizure of Lincoln. Five senators, including Alan Cranston (D-Calif), meet with Edwin Gray, head of Federal Home Loan Bank Board, on Keating’s behalf. M. Danny Wall replaces Gray. The SEC launches an investigation of American Continental.
1988: Wall orders a new examination and a transfer of Lincoln’s supervision from San Francisco to Washington.
1989: In April, American Continental files for protection under Chapter 11 of the bankruptcy code, restricting regulators’ access to its records. The next day Lincoln is seized by federal regulators. Keating sues to regain control of Lincoln. Hundreds of American Continental bondholders sue Keating for fraud. Resolution Trust Corp. in September files a $1.1-billion civil racketeering and bank-fraud lawsuit against Keating and 19 associates. Keating refuses to testify before the House Banking Committee in November. Senate Ethics Committee begins probe of charges that Cranston and other senators improperly intervened with federal regulators on Lincoln’s behalf. Wall resigns. State and federal grand juries begin criminal investigations.
1990: Keating says in federal court that regulators wrecked Lincoln. The state attorney general, through Los Angeles Dist. Atty. Ira Reiner, wins approval for a special state grand jury to investigate possible criminal wrongdoing in the sale of American Continental bonds. The State Department of Corporations sues Keating and two executives for the return of $200 million to bondholders. Federal judge rules that regulators acted properly in seizing Lincoln, saying Keating looted it. Keating resigns from American Continental. Office of Thrift Supervision seeks $41 million in restitution from Keating. A state grand jury indicts Keating and three associates on 42 counts of fraud relating to the sale of American Continental bonds. Keating spends a month in Los Angeles County Jail before being released--when his bail is reduced to $300,000 from $5 million.
Researched by Dallas M. Jackson / Los Angeles Times
