Former Treasury Secretary William E. Simon earned a sizable personal fortune and an even larger reputation as king of the leveraged buyout on Wall Street in the early 1980s. But these days his sights are set on a far greater, and potentially more lucrative, target--the Pacific Basin.
At 59, Simon envisions himself as master of a vast international merchant bank reaching from headquarters in Los Angeles to the emerging profit centers of Japan, Hong Kong and Australia. In a recent interview, he likened his nascent empire to the potent Hong Kong merchant banking houses portrayed in James Clavell's epic novel "Noble House."
It all sounds grandly philosophical. But information emerging from court records in Hawaii demonstrates how the creation of his new empire reflects the same hard-headed, practical theory that Simon employed in leveraged buyouts--risk as little personal money as possible and exploit any weakness or advantage to ensure the greatest potential profit.
Information generated in three civil lawsuits related to Simon's takeover of Honolulu Federal Savings & Loan last year portrays Simon and his partners as savvy investors who exploited opportunities in the troubled savings and loan industry to ensure a profit of as much as $100 million in the deal by undervaluing the thrift's real estate holdings.
In one lawsuit, a former executive of Honolulu Federal said that he was ordered to work with a firm hired by Simon to slash appraisals on property owned by the thrift by more than $100 million, which dramatically reduced the price that the Simon group had to pay.
The former executive also claimed that the Simon partner in charge of scouting for acquisitions among troubled thrifts had confidential government information on more than 50 savings and loan firms in the group's Beverly Hills offices.
Simon and two of his partners said in interviews that the reappraisal process for Honolulu Federal was strictly routine and approved by federal regulators. They strongly denied receiving any government documents to which they were not entitled.
The first public word of Simon's grand design came almost precisely a year ago when he and his partners, chiefly Los Angeles lawyers and developers, announced the acquisition of Honolulu Federal, known as Honfed, and unveiled plans to acquire more financial institutions.
Since then, the group has bought three additional savings and loans and control of a bank, all in Los Angeles, and is negotiating for several other institutions. In the case of Honfed, the partners got an institution with assets of $1.7 billion for $17.5 million. In buying a failing $1-billion thrift earlier this year, Southern California Savings & Loan in Beverly Hills, they put up $5 million and raised another $35 million from Italian and Australian investors. Federal regulators anted up $217.5 million in cash.
Simon and his partners have also invested $50 million in 11 real estate ventures in California, purchased 28% of Hawaii's third-largest bank, and started a fledgling merchant bank in partnership with an Australian firm, which has made $200 million available to start.
In an interview earlier this month, Simon said he ultimately plans a full line of financial services under the umbrella of a giant merchant bank. The operation would provide venture capital, finance leveraged buyouts and takeovers, fund huge real estate developments and offer every other financial service, from banking and insurance to securities trading.
The sheer scope of the plans and the involvement of Simon guaranteed the group a high profile. And the publicity surrounding their opening gambits has been positive and profuse.
Most of the actual acquiring, however, has been done within the secrecy that hides most transactions involving private investors and the agencies that regulate the nation's financial industry. But the information from the three lawsuits provides a rare look inside one of the deals, and possibly represents a blueprint for other transactions.
Much of the information is contained in the lawsuit filed by David H. Lacy, a former executive vice president of Honfed, against his ex-employers. Lacy's lawyer, Jerry Hiatt, refused to discuss the lawsuit. But the voluminous files connected with the suit remain public, despite the efforts of lawyers for Honfed to seal the court record as part of a settlement of the lawsuit.
In exchange for an undisclosed sum of money, Lacy and Hiatt settled the suit, agreed not to discuss the matter with anyone and accepted a proposal by Honfed's lawyers to seal the entire court record. For unknown reasons, the file has not been sealed yet and the material was available recently in the state courthouse in Honolulu.