The remnants of Columbia Savings & Loan, the nation's most profitable thrift when it rode the 1980s junk bond boom, were sold by federal officials Friday to American Savings Bank, putting to rest a failure that will cost taxpayers $1.2 billion.
In what amounts to pocket change in the thrift business, American, owned by the Robert M. Bass Group, will assume 20 branches and $794 million in core deposits for a scant $6.1 million. Core deposits are savings accounts that are considered relatively stable.
The Stockton, Calif.-based thrift is paying an exceptionally low premium of less than 1%. It also will receive $52.4 million in other assets, most of it cash.
About $3.25 billion in Columbia deposits will be paid off in what officials said will be the biggest single payoff in history. Those deposits are so-called hot money--high-interest deposits marketed to professional investors and Wall Street firms for their clients.
The $1.2 billion the Beverly Hills thrift's failure will cost taxpayers is in line with what insiders and thrift experts expected. Although it is one of the biggest failures ever, it lags behind Irvine-based Lincoln Savings & Loan, which will cost taxpayers $2.6 billion, and Miami-based CenTrust Savings, which will cost $1.7 billion.
Kevin Shields, a spokesman for the Resolution Trust Corp., which is mopping up the savings and loan mess, said it will take time to locate all of Columbia's depositors because the RTC has not been given the names from brokers that the thrift worked with. He said the deposits not assumed by American will stop earning interest effective Friday.
Led by former Chief Executive Thomas Spiegel, Columbia became best known for its close ties with Drexel Burnham Lambert and Michael Milken, who built Drexel's powerful junk bond network in the 1980s. Columbia was Milken's best customer among savings and loans. At one time it held more than $4 billion in the high-yield securities, most of them issued through Drexel.
Spiegel made Columbia wildly profitable by offering high interest rates on deposits to professional investors and investment houses placing money on behalf of clients. The spread between what Columbia paid for those deposits and what it earned on its high-yield junk bonds resulted in fat profits. In 1986, it earned $193.5 million.
But the value of junk bonds began tumbling in late 1989 and became a free fall in 1990.
Over five consecutive quarters, Columbia hemorrhaged, losing $1.4 billion, wiping out its net worth. Helping cause the plunge in value was federal legislation designed to force thrifts out of the junk bond business. Under accounting rules, Columbia was forced after the legislation was passed to constantly devalue its holdings and recognize losses when junk bond prices fell. It was seized in January after an unsuccessful attempt to sell the bonds.
Spiegel was forced out in late 1989 in the wake of a federal investigation into his spending habits at Columbia. He has been accused in a civil action by regulators of spending Columbia money on such things as personal plane trips, vacations at Columbia-owned condominiums and an extensive gun collection.
Federal authorities are also investigating him for possible criminal violations related to activities at Columbia and transactions with Milken.
Columbia was formed in 1974 by Spiegel's father, Abraham, a real estate developer. Thomas Spiegel became chief executive in 1977, linking up with Milken, whom he met at a party, in 1982. Milken is now serving a 10-year prison sentence in Northern California for violating securities laws.