U.S. Seizes Simon-Led Western Fed : Thrifts: Regulators say it was undercapitalized and plagued by losses. Former Treasury secretary and his family reportedly lose $40 million.
Western Federal Savings & Loan, a Marina del Rey-based thrift owned by an investor group led by former Treasury Secretary William E. Simon, was seized by federal regulators Friday because it was undercapitalized and plagued by losses.
The wealthy Simon and his family alone instantly lost more than $40 million they had invested in the S&L;, Simon’s son said in a phone interview. Forbes magazine estimated last fall that Simon’s net worth was $275 million.
Western Federal has assets of $3.8 billion, making it a medium-size savings and loan by California standards. Its 27 branches are located throughout Los Angles and Orange counties.
The industry’s regulator, the Office of Thrift Supervision, said it placed the S&L; in receivership and turned it over to the Resolution Trust Corp., a federal agency that will now run the thrift while it looks to sell Western Federal’s assets.
Simultaneously, the OTS immediately renamed the thrift Western Federal Savings Bank, and said the institution will open and operate as normal. Customers’ deposits of up to $100,000 are protected by federal insurance, the OTS noted.
Western Federal, battered by the California real estate slump and “poorly underwritten” loans, had suffered losses and problem loans that left it “critically undercapitalized,” and there was “no reasonable prospect” it could be saved “without federal assistance,” the OTS said.
Western Federal’s troubled assets totaled 11.2% of its total assets as of March 31, and the thrift had lost $73.2 million in 1992, the OTS said.
Ironically, Simon and his fellow investors acquired several financial institutions in the late-1980s, in large part because they got federal help in purchasing the companies. His co-investors in buying Western Federal in 1988 were former Federal Reserve Vice Chairman Preston Martin, who until Friday was Western Federal’s chairman, and attorney Gerald Parsky, who is no longer involved in the S&L.;
The Simons’ other institutions include Southern California Savings and World Trade Bank, both in Beverly Hills.
Western Federal’s seizure is a black mark in the often-celebrated investment record of Simon, who gained fame and a personal fortune during the 1980s as one of the early practitioners of the leveraged buyouts that were a key part of the 1980s merger mania.
Simon’s son, William E. Simon Jr., said in a statement from their family’s West Los Angeles office that the family “regrets the loss of its substantial capital investment in Western Federal, as well as the losses suffered by other investors.”
In a brief interview, the younger Simon said his family had “in excess of $40 million in the institution.”
Now, however, the Simons and the other owners--who technically were owners of Western Federal’s holding company, WestFed Holdings Inc.--no longer have any ownership in the S&L;, the OTS said.
The younger Simon also asserted that “a primary cause” of Western Federal’s demise was “the unilateral and wrongful repudiation of the original capital agreements by which federal banking regulators induced us and the other investors to invest substantial sums in Western Federal.”
He was referring to changes in federal thrift laws, particularly a change mandated by Congress in 1989 that also has been challenged by the parent of Glendale Federal Bank. The thrifts contend that accounting changes immediately depleted their capital--or cushion against future losses--and left them unable to meet regulators’ minimum capital requirements.
Martin said in an interview that he had “been working day and night” to bolster Western Federal’s condition but ran out of time. He claimed that he could not remember what stake he owned in the thrift nor how much money he had invested.
