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Regulators Seize Ex-Powerhouse Great American : * S&Ls;: Once home to political insiders, the San Diego thrift fails from bad loans and shrinking assets.

SAN DIEGO COUNTY BUSINESS EDITOR

Federal regulators Friday seized Great American Bank, the nation’s 11th-largest savings and loan, as the thrift’s capital base dwindled and losses from bad real estate loans continued to mount.

The takeover by the Office of Thrift Supervision marks a sad chapter in the 106-year history of Great American, an institution once regarded as a thrift-industry innovator and a powerful financial and political force in San Diego.

The failure of Great American was anticipated last week after the S&L; completed the sale of its California branches to Wells Fargo & Co. Despite the gain from the sale, Great American is far below regulatory capital levels and saddled with a large portfolio of bad loans.

“Great American was operating in an unsafe and unsound condition in that it had insufficient capital with no prospect of replenishment without federal assistance,” the OTS said in a statement.

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There was no disruption of business at Great American branches and insured depositors were not affected by the takeover. Deposits continued to be covered by federal insurance for up to $100,000. The takeover is likely to wipe out investments of the S&L;'s stock and bond holders.

Great American’s fall from grace comes just several years after it was seen as an industry powerhouse. In the mid-1980s, the thrift pioneered the installation of automated teller machines and created a strong branch network throughout California.

Its executive ranks grabbed the reins of power in both the state and nation. Former Chairman Gordon Luce achieved political prominence as an early supporter and fund raiser for Ronald Reagan. He served in Reagan’s state Cabinet for three years and was chairman of the state Republican Party from 1970 to 1972. Another Great American executive, Ed Gray, was appointed by Reagan to be chairman of the Federal Home Loan Bank Board.

Great American’s downfall was largely because of its 1986 acquisition of an Arizona S&L; whose loans soured along with that state’s declining real estate values. Great American, which has estimated assets of $8.3 billion, was also hit by bad commercial real estate loans in California.

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As a result, the S&L; reported losses of $263.4 million in 1989 and $173 million in 1990, leaving it in a terminally weakened state. The S&L; expects to report a loss of $116.8 million for the first half of 1991.

“It’s no great surprise. The company has been heading downhill for the past two years,” said Campbell Chaney, a banking analyst for Sutro & Co., a securities firm in San Francisco. “The regulators obviously decided it was hopelessly insolvent.”

In California, the failure is second in size only to the February, 1990, collapse of Imperial Savings, also based in San Diego, which then had assets of $9.7 billion. Great American is the 52nd California thrift to fail since 1989. Nationwide, 635 S&Ls; have been seized over the past two years, and 166 are now under federal control, OTS spokesman Mark Adams said Friday.

At one time, Great American had 130 branches in California, but sold them in a two-phased deal to Wells Fargo to raise capital. Great American still has 81 remaining branches in Arizona, Colorado and Washington.

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The Resolution Trust Corp., the federal agency charged with selling or closing failed thrifts, named J. Michael Berry, a former RTC regional director, as Great American’s new “managing agent.” Berry, who was unavailable for comment Friday, previously was appointed managing agent at Santa Barbara Federal after that thrift failed.

No layoffs are planned at Great American, said RTC spokesman Kevin Shields, and Great American Chief Executive Robert Kemper, who replaced the retiring Luce last June, “has agreed to stay on for the near term” in some management capacity.

But Kemper’s title and future status at the S&L; were unclear Friday. Kemper, a 62-year-old former vice chairman of Wells Fargo who was hired in July, 1990, with regulators’ blessings, was unavailable for comment.

Federal regulators are expected to seek outside bidders for Great American’s remaining branches in the next few months. Chaney of Sutro & Co. expects Bank of America and Security Pacific Bank to be among the bidders for Great American’s branches in Arizona, where both banks have been bolstering their presence.

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Despite several attempts to increase its capital, Great American’s loan problems proved insurmountable. In fact, the deterioration of Great American’s portfolio has continued unabated, to the point that $2.46 billion of its loans, or 24.2% of the total $10.1 billion assets as of March 31, were classified as “substandard, doubtful or loss” by regulators.

Even after the sale of its branches, Great American’s tangible capital--just one of three capital measures--was more than $130 million short of the minimum amount required.

Great American has not released its audited second-quarter results yet, so its precise asset total was unavailable Friday.

But a spokesman said the second phase of the branch sale to Wells Fargo involved the transfer of about $1.8 billion in assets from Great American, leaving the S&L; with about $8.3 billion in assets.

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At that asset level, the Great American takeover ranks ahead of the seizure of Columbia Savings, which had $6.6 billion in assets at its takeover in January. Lincoln Savings had $4.1 billion in assets when it was seized in April, 1989, OTS spokeswoman Laurie Lavaroni said.

Great American Bank at a Glance

* Location: San Diego

* Branches: 81 in Arizona, Washington and Colorado

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* Assets: About $8.3 billion

* Founded: 1885

* Estimated loss for 6 months ended June 30: $117 million

* Loss for 1990: $173 million

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* Bad assets: As of March 31, about $2.46 billion, or 24.2% of total assets, were classified as substandard, doubtful or loss.

Background:

* Seizure follows Aug. 1 completion of 38-branch, second phase of sale of Great American’s California branches to Wells Fargo. The first phase, involving 92 branches in Southern California, was completed in November.

* As of June 30, Great American tangible capital, the most stringent measure, was negative $83 million, or $222 million below the minimum regulatory level.

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* Even with $107-million premium from the second phase of branch sale, Great American’s pro forma tangible capital is only $4 million, still far short of capital compliance.


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