BANKING/FINANCE : Lincoln Awarded $49.5 Million in Southmark Loans

The well-known loans between Lincoln Savings & Loan and Southmark Corp. have often been interpreted as little more than improper transactions used by thrift owner Charles H. Keating Jr. to get around federal regulations.

But a ruling this week by a federal judge in Tucson would seem to take some of the wind out of such opinions.

U.S. District Judge Richard M. Bilby on Monday awarded $49.5 million to two subsidiaries of the Irvine thrift that had made secured loans to a Southmark subsidiary, Southmark Life Group.

The bankrupt Southmark contended that it, not its subsidiary, used the money and made interest payments on the loans and that, therefore, the loans were really unsecured obligations entitled to only pennies on the dollar in Southmark’s own liquidation.

The Dallas company also contended that the loan agreements may not be enforceable because they may constitute an improper “reciprocal arrangement” between it and Lincoln’s parent company, American Continental Corp.

Southmark said it will appeal Bilby’s ruling.