Great Western Acquires Failed Lincoln S

IRVINE â€”  Great Western Bank in Beverly Hills on Friday acquired the deposits and 28 branches of Lincoln Savings & Loan for $12.1 million, as regulators put to rest the once high-flying thrift whose name is synonymous with the S&L; industry debacle.

The sale means that Irvine-based Lincoln will be removed from the rolls of the nation’s money-losing thrifts. But federal regulators now say the taxpayer tab for cleaning up the failed thrift will be $2.6 billion, making it the costliest S&L; collapse to date.

Lincoln’s demise, linked to speculative real estate and junk bond investments, is a symbol of all that went wrong in the thrift industry. But while it may pass from view, Lincoln’s ignominious legacy lives on in U.S. Senate corridors, federal and state courtrooms and in the memories of thousands of Southern California investors who lost savings there.

That could be seen in a separate development Friday. Federal prosecutors in Los Angeles filed a criminal complaint against Ray C. Fidel, a former Lincoln president, for securities fraud stemming from the marketing of junk bonds at Lincoln branches.

The charges are the second to stem from a federal grand jury investigation of Lincoln’s failure in April, 1989. The probe is targeting Charles H. Keating Jr., former chairman of Phoenix-based American Continental Corp., which owned Lincoln.

The Resolution Trust Corp., the federal agency overseeing the bailout of insolvent thrifts, put Lincoln up for sale in November. Great Western said it acquired more than $2 billion in Lincoln deposits and what it termed “a jewel of a branch system.�

The Lincoln branches will be reopened Monday for business as usual as Great Western offices. A 29th branch, a limited-use office tucked away in Lincoln’s headquarters building, was closed and deposits there transferred to other branches.

All deposits acquired by Great Western will continue to be covered by federal insurance up to $100,000 per account. However, the thrift said it probably would change interest rates on some Lincoln accounts in the near future.

Great Western also acquired about $6 million in cash on hand and securities but otherwise stayed away from Lincoln’s troubled assets, which includes vast real estate holdings in the Arizona desert and some junk bonds. Regulators have said that Lincoln’s assets were overvalued, and they have written them down over the past two years.

Some of the Lincoln signs will be changed over the weekend, but it will take several months for its computer and other operations to be fully assimilated into the banking business of Great Western, now the nation’s and state’s second-largest thrift.

All 200 of Lincoln’s branch employees will be offered jobs with Great Western, but it was unclear late Friday whether 50 administrative employees would continue with the Beverly Hills thrift.

The $12.1-million “premium� that Great Western paid for the deposits is considered cheap by industry consultants, a fact acknowledged by the thrift’s chairman and chief executive, James F. Montgomery.

“The acquisition of Lincoln Savings on these favorable terms is an outstanding opportunity to expand and complement Great Western’s California branch system,� Montgomery said, adding that it would enable Great Western to enlarge its customer base.

The payment represents just 1.2% of Lincoln’s $1 billion in so-called “core deposits�--stable money that is less likely to be shifted by depositors to other institutions. Such deposits are valuable also because they provide a cheap source of funds.

Institutions typically pay lower amounts of interest on those accounts than they do for other sources of money. By buying the deposits of Lincoln and other failed thrifts, Great Western can replace its higher-cost deposits, such as borrowings from the Federal Home Loan Bank system and large deposits from institutions that demand high rates.

“There is a belief in the long run that you never lose by growing your consumer-deposit base because the banking and thrift industry will set prices on loans to make those funds profitable,� said Jonathan E. Gray, a savings and loan analyst with the Wall Street investment firm Sanford C. Bernstein & Co.

The premium paid drew criticism from Keating’s son-in-law and spokesman, Bradley J. Boland, who called the low purchase price “disgusting.� He said regulators wasted a chance to avoid a huge loss by refusing to approve a $500-million sale of Lincoln just before it was seized. Regulators said then there wasn’t enough cash in the deal.

“Because Lincoln is the biggest profile case, regulators had to get to the $2.5-billion figure,� Boland said, referring to what regulators said the institution’s failure will cost. “They used that figure when they took us over, and they had to make it a self-fulfilling prophecy.�

The $2.6-billion tab on Lincoln’s failure exceeds the $2.58-billion cost of the collapse of University Federal Savings in Houston. The ultimate cost of Lincoln’s collapse is slightly higher than previous estimates.

The agency said it received 27 proposals for buying all or small parts of Lincoln, and Great Western’s was determined to be the least costly to taxpayers. Bidders included at least four commercial banks and five S&Ls.;

The purchase will boost Great Western to nearly $30 billion in deposits and 241 retail banking branches in California. Great Western has 164 additional retail branches in Arizona, Florida and Washington state. It has been particularly active in Florida in the last year, picking up branches there from four failed thrifts run by the government.

Lincoln is Great Western’s first purchase of a failed California thrift from the RTC, though it is not for lack of trying. The thrift tried to buy Gibraltar Savings in Simi Valley, one of the largest thrifts made available by the RTC, but was outbid by Security Pacific Corp. It did buy a small operation of Gibraltar’s in Florida.

Though home lending remains Great Western’s main business, some bankers consider it more of a direct rival than they do other thrifts because Great Western has been more successful than other S&Ls; in developing business accounts and other services that banks offer.

Lincoln’s sale was one of three transactions for major failed thrifts concluded Friday night by the Resolution Trust Corp., the federal agency charged with managing and liquidating seized institutions.

Regulators said they have enough money to sell one more institution with more than $1 billion in assets, but they won’t get to the failed Imperial Savings until after Congress approves additional funding for the agency.

Meanwhile, the repercussions from the Lincoln failure are being argued in several venues.

Keating used American Continental, his real estate development firm, to acquire Lincoln in 1984. He quickly launched the thrift on a path of rapid growth by attracting brokered deposits and investing that money in speculative real estate projects and risky junk bonds. His activities incurred the wrath of regulators.

He turned to powerful politicians for help. Five U.S. senators--now known as the Keating Five--intervened with regulators on his behalf. In turn, he made lucrative donations to their campaigns.

The Senate Ethics Committee recently held hearings on the Keating Five. The committee determined that Sen. Alan Cranston (D-Calif.) acted improperly in intervening for Lincoln with regulators and then seeking contributions from Keating. The committee reprimanded the other four. The full Senate will decide on Cranston’s punishment, if any.

Keating and his associates face criminal charges in state court and various civil actions in federal court. Federal regulators argue that he looted Lincoln. They originally sought $41 million in restitution from him, but recently increased that to $130 million.