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Despite Ongoing Woes, FCA's Chief Is Firmly in Charge

February 08, 1988|TOM FURLONG | Times Staff Writer

If William J. Popejoy's job as chief executive of Financial Corp. of America is in jeopardy, it is not apparent from the comments of the people who set his business agenda and pay his $524,000 annual salary.

"We have a lot of confidence and faith in Bill Popejoy," said Roger Martin, one of three members of the Federal Home Loan Bank Board, the nation's primary regulatory agency for savings and loan firms.

"In my opinion, the (FCA) board is 100% supportive of him," added Robert M. Barton, a Newport Beach lawyer and one of seven outside directors who include UCLA Chancellor Charles E. Young and Lawrence K. Roos, former president of the Federal Reserve Bank of St. Louis.

Popejoy's performance at Irvine-based FCA, parent firm of American Savings & Loan, is topical once again in the aftermath of the $468-million loss for 1987 that the financial institution reported late last month.

The cascade of red ink rendered American Savings technically insolvent, meaning that its liabilities now outnumber its assets. In other words, the institution would be unable to pay off all its depositors and creditors if it were closed and all its loans liquidated.

The losses have rekindled an old debate about whether Popejoy has the executive savoir faire to turn around the behemoth financial institution. American Savings, which has nearly $34 billion in assets, easily remains the largest problem facing the savings and loan industry today.

The massive losses graphically illustrate how the financial condition of American Savings has deteriorated in recent months, despite the efforts of Popejoy, who is in his fourth year as chief executive. The year-end results included large operating losses as well as massive reinforcements for loan-loss reserves.

"I was shocked at how poor their year-end figures were," said Prudential-Bache securities analyst Jerome I. Baron, a longtime company watcher.

Blames Troubles on Knapp

Popejoy appears increasingly frustrated with his post, although he says he is more determined than ever to stay. Independently wealthy and a resident of Newport Beach, Popejoy insists that he will leave only if his directors or the Federal Home Loan Bank Board wants him to resign.

Popejoy and his supporters continue to blame their current woes on past loans made by the management team led by Charles W. Knapp, whom federal regulators forced to resign in the summer of 1984. FCA has added $1.7 billion to loan-loss reserves since Knapp left the chief executive's job, including a $236-million addition in the last three months of 1987.

"You can't fault Popejoy," said Anthony M. Frank, a banking executive from San Francisco who just accepted an appointment as U.S. postmaster general. "He's not part of the problem."

But Knapp, in a counterattack that broke a long silence, said in an interview last week that he is fed up with being blamed for the ills of a firm that he left 42 months ago. Knapp charged that bad management under Popejoy has allowed delinquent loans to go uncollected and foreclosed property to become neglected.

"We are tired of continually being management's scapegoat for their own inabilities and inefficiencies," Knapp, now a Los Angeles investment banker, said in a sharply worded statement.

Knapp, who resigned only after FCA's directors gave him a $2-million severance payment, added: "The problems of the company are solvable, but we do not believe the current management has exhibited the ability to function effectively in reaching for resolutions. At this point in time, strong leadership and a strong organization is required."

Knapp is not alone in his critique.

Financial analysts say FCA's recent corporate strategies have only made the company more vulnerable to losses from rising interest rates, while shareholders are angry that the stock is trading at less than $2 a share.

Competitors continue to grouse among themselves that Popejoy's controversial decision to increase the company's assets by 25% in late 1986 has made American Savings an even greater liability to the Federal Savings and Loan Insurance Corp. should it fail. FSLIC is the industry-funded arm of the Federal Home Loan Bank Board that insures customer deposits up to $100,000 and pays the costs when a savings and loan fails.

A Greater Liability

FCA borrowed heavily from Wall Street investment banking houses to amass an $18-billion pool of mortgage-backed securities. But American Savings now faces large potential losses on these securities because rising interest rates have depressed their value. The losses would be realized if American Savings has to sell the securities.

The controversial growth strategy was approved by Edwin J. Gray, then chairman of the Federal Home Loan Bank Board. The regulators "really allowed Bill to bet the store, and the store here is FSLIC," said one former member of the bank board. Gray, now a savings and loan executive in south Florida, could not be reached for comment.

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