Financial Corp. of America, still mending from a near failure that sent fearsome shudders through the nation's banking system in 1984, is on its way to regaining its status as the biggest and best-known maverick in the savings and loan industry.
Following almost two years of relative quiet, FCA is drawing intense flak from competitors because of its supposed return to some of the same business practices that landed the behemoth financial institution in so much trouble in the first place. FCA's operating subsidiary is American Savings & Loan, the nation's biggest.
"It's horrifying a lot of people," one competitor said.
The hard feelings have eroded the good will that William J. Popejoy, a longtime industry insider, has enjoyed since he took over as FCA chief executive from Charles W. Knapp on Aug. 28, 1984. Industry regulators forced Knapp to resign because they felt that his lending practices were unsound.
The ovations--so loud when Popejoy took the helm--have given way to swelling feelings of doubt and anger, particularly in the executive suites of other large California savings and loan firms. These critics believe that Popejoy is going down the same path that led to Knapp's downfall by relying on fast growth in assets and fixed-rate lending to generate profits. They contend that American Savings has done little to lessen its exposure to interest rate swings.
Angering powerful competitors in the highly regulated savings and loan business is no trifling matter, as Knapp learned. Savings and loan regulators ousted the former FCA chief following an intense lobbying campaign from industry leaders in California.
The feelings about American Savings are hardly unanimous, though. Supporters and neutral observers say Popejoy is only making the best of a very complex and difficult situation. Further, even some critics concede that he has few viable alternatives.
Some also believe that American Savings' competitors are simply angry because the big financial institution is once again flexing its muscles in the marketplace. "Half of the complaints are sour grapes," said real estate consultant Sanford R. Goodkin, an unabashed supporter of Popejoy. "Here's a giant that is back as a legitimate competitor again."
Indeed, American Savings' actions have proved a boon for consumers. Much to the dismay of healthy competitors, American Savings has often offered high savings rates for deposits and recently slashed rates on long-term, fixed-payment mortgages. Unhappy competitors have no choice but to follow the lead.
Replies to Critics
Popejoy replies to his critics by saying that they do not understand his corporate strategy. Company operations are less risky today than they used to be, he says, in part because of hedging strategies that would protect the financial institution if interest rates begin to rise.
Nor, he adds resentfully, do his competitors fully appreciate the importance of keeping American Savings alive at no cost to the industry's deposit insurance fund, administered by the Federal Savings and Loan Insurance Corp.
As it is, the FSLIC fund badly needs additional money to take over ailing savings and loans, one of its primary tasks. It also insures customer accounts up to $100,000.
"If we had failed, there would be no FSLIC today," Popejoy said in an interview in his office, meaning that a failure of American Savings would have bankrupted the deposit insurance fund.
What happens at American Savings inevitably ripples through the entire savings and loan business. It is the undisputed industry front-runner in terms of size, with $34 billion in assets, and problem loans, which now total $1.66 billion.
With American Savings once again in the spotlight, a close look at the financial institution indicates that its prospects for long-term success are nearly as uncertain as when Popejoy took over 30 months ago. Financial experts generally agree that interest rates must continue to fall, or at least remain stable, in the coming years if the institution is to regain its health.
Popejoy saw American Savings through the dark days of late 1984 and early 1985 when regulatory and public confidence in the financial institution hit new lows. The nadir came in the summer of '84 when a $6.84-billion run eroded more than a quarter of its deposit base.
Failure was narrowly avoided through heavy borrowings on Wall Street, and a measure of confidence in the institution was eventually restored after Popejoy did a series of television commercials promoting the thrift.
American Savings' high-energy corporate culture was also transformed dramatically. FCA's headquarters was moved from Wilshire Boulevard in Los Angeles to more modest digs off the San Diego Freeway in Irvine, near where Popejoy, 48, lives. (American Savings' headquarters remains in Stockton.)