Midas Touch Eludes Simon Bid to Build Thrift Empire : Banking: Leveraged-buyout artist bought holdings in the West in 1980s. Southland investments have soured.

By JAMES F. PELTZ

June 9, 1993 12 AM PT

TIMES STAFF WRITER

As high-powered investor William E. Simon and his partners began acquiring Western thrifts and banks in the late-1980s, Simon spoke about building “a mosaic of financial institutions” that would exploit the growth of trade in the Far East and financial services in the Sun Belt.

Controversial and combative, the former Treasury secretary even compared his growing empire to the Hong Kong merchant banking houses portrayed in James Clavell’s novel “Noble House.”

After all, Simon was once a legendary bond trader on Wall Street who went on to become a top economic policy-maker in Washington and later made tens of millions of dollars through leveraged buyouts in the 1980s.

Simon never did become a financial powerhouse in the West, however, and what’s left of his mosaic today is crumbling.

Federal regulators now run what was his biggest remaining Sun Belt holding, Western Federal Savings, after seizing the Marina del Rey-based thrift last Friday. The 27-branch S&L;, with $4 billion in assets, suffered major losses and had far too little capital to keep going, the Office of Thrift Supervision said.

Three smaller Simon-controlled institutions--Southern California Savings, Westcoast Savings and World Trade Bank--are also either struggling or have required major cash infusions.

Owning sick S&Ls; is not unique to Simon, whose family operates offices in Los Angeles and Morristown, N.J., and he did manage to sell two of his financial holdings--Honolulu Federal Savings and First Interstate Bank of Hawaii--for profits estimated at more than $40 million. But his family also lost $40 million it had invested in Western Federal, and Simon and his partners had to pump $48 million into Southern California Savings last year to keep it afloat.

To some, this blemishes the reputation Simon earned in the 1980s as an investor with a Midas touch.

“Obviously, it’s turned out far less attractive than he had hoped,” said Gareth Plank, who follows S&Ls; for Mabon Securities in San Francisco. “Having a transaction turn as far south as this one means the investment community is going to take a second look at (Simon’s) prowess.”

Simon--who was said to be traveling and not available for comment--is certainly by all accounts still a very wealthy man, with Forbes magazine last fall estimating his net worth at $275 million. Besides financial services, Simon has other investments in real estate and radio stations.

Others in the investment world defend him, noting that even the most astute investors sometimes bomb.

“I don’t know any investor that’s been 100% successful,” countered Campbell Chaney, a thrift analyst with Hancock Institutional Equity Services. “Clearly William Simon’s successes outnumber his failures.”

In any case, it was not supposed to be this way for the legendary Simon, 65, an impatient figure who is said to have little tolerance for failure. His admirers find him charismatic and loyal, while his critics say he is abrupt and imperious.

The son of an insurance agent, Simon first made his mark as a hugely successful bond trader at Salomon Bros. in the 1960s. With his thick eyeglasses, a Simon trademark, he later became familiar to the American public as the nation’s first energy “czar” under President Richard Nixon, and Treasury secretary under President Gerald R. Ford.

As the 1980s dawned, Simon teamed with a New Jersey accountant named Raymond Chambers, and helped pioneer the use of leveraged buyouts, in which undervalued, cash-rich companies were bought with mostly borrowed money.

Their partnership, known as Wesray Capital, bought such companies as greeting-card maker Gibson Greetings, Wilson Sporting Goods and pattern maker Simplicity Manufacturing.

In many cases, Simon and his investors resold the properties for vast profits, making Simon one of the richest men in America.

Wesray’s success helped make leveraged buyouts a staple during the merger-wild 1980s. And Simon added another notch to a renowned career that also included stints as author, lecturer and political activist.

A devotee of conservative causes, Simon wrote a newspaper column in 1986 that called the president of Dartmouth College a “wimp” because 10 students had been suspended in connection with a raid they made on several anti-apartheid shanties on campus.

Simon has attacked some U.S. Catholic bishops as too liberal, and was one of the leaders of the effort to confirm Clarence Thomas for the U.S. Supreme Court.

Simon is also an avid sportsman who has taken long yachting trips in the Pacific, attended America’s Cup races in Australia and done both surfing and scuba diving. He’s a former head of the U.S. Olympic Committee.

After leaving Wesray in 1985, Simon felt that he could build his financial empire in the Pacific Basin by buying ailing thrifts and banks with the help of the U.S. government, which was anxious to arrange such mergers of troubled institutions.

His Midas touch was naturally expected to work again.

Simon’s main partner was Los Angeles lawyer Gerald L. Parsky, a former colleague from his Treasury days. But Simon also brought in an experienced partner in Preston Martin, a former vice chairman of the Federal Reserve Board.

The formula worked with both Honolulu Federal and later with First Interstate of Hawaii, which was sold in 1990 for a fat profit only a year after Simon took control. But Simon’s remaining Southland financial investments have soured, and Parsky is no longer involved after a bitter split with Simon in 1991.

Besides Western Federal’s failure, Southern California Savings suffered a 34% surge in problem loans and suffered heavy operating losses last year, according to Sheshunoff Information Services, a research firm in Austin, Tex.

With assets of about $2 billion, Southern California Savings is sturdier than Western Federal, thanks to last year’s infusion of $48 million by Simon and his partners. “It’s condition is fine,” asserted Martin, who is its chairman, although he declined to provide specific figures.

Westcoast Savings, a little Marina del Rey-based thrift with only $66 million in assets, turned a $500,000 profit last year but saw its problem loans nearly quadruple from 1991, Sheshunoff reports.

At Simon’s World Trade Bank, a tiny Beverly Hills-based bank, its non-performing loans equaled a lofty 11% of its $71 million in total assets, the research firm says.

Simon’s son, William Simon Jr., blamed much of Western Federal’s problems on Congress, asserting it changed the accounting laws under which Simon and others bought ailing S&Ls; in the 1980s and so instantly put the thrifts at financial risk.

But the financial institution was undone by the ailing Southern California economy as well. Bert Ely, a banking consultant, also suggested that the Simon-led management also must take some of the blame.

“We can’t just say this is another California S&L; that tanked for reasons beyond its control,” Ely said, “because clearly there are many that did not fail.”

The House of Simon

William E. Simon and his investors envisioned a Western financial empire when they bought several Sun Belt thrifts and banks in the late-1980s. But his remaining holdings are hurting from the recession and changes in federal laws regulating thrifts.

Western Federal Savings*

* Headquarters: Marina del Rey

* Assets: $4.0 billion

* Problem loans as percent of total loans: 6.7%

* Net income (loss): ($40.6 million)**

Southern California Savings

* Headquarters: Beverly Hills

* Assets: $2.1 billion

* Problem loans as percent of total loans: 2.0%

* Net income (loss): ($38.4 million)**

Westcoast Savings

* Headquarters: Marina del Rey