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How a Texas S&L Ends Up Costing the U.S. So Much

December 04, 1988|TOM FURLONG | Times Staff Writer

DALLAS — Edwin T. McBirney III cut a wide swath through the lending circles of this city a few years ago when he owned and operated Sunbelt Savings Assn., known as Gunbelt Savings during the go-go McBirney era.

High-strung and jet-fueled, McBirney was widely known as "Fast Eddie" because of his love for big development deals done with flair and dispatch. With a big cigar in hand, McBirney was an overpowering figure who would barge into a room full of borrowers, bang on the table and tell them what kind of loan they were going to get.

"He was," one Dallas banking attorney recalled, "a total piece of work, as we like to say here."

Though the McBirney era has long since passed, it left behind fatal legacies for Sunbelt, including staggering losses on real estate development loans that led to its eventual failure. Sunbelt Savings was "a can of worms," said H. Joe Selby, a former thrift regulator in Dallas who used to oversee Sunbelt, in a recent interview.

The story of how Sunbelt Savings got that way is a saga of questionable lending and management, explosive growth and charges of civil fraud against McBirney, who was both Sunbelt's chief executive and major shareholder. He left his job with the firm in 1986 when regulators pressured him to resign.

McBirney declined to be interviewed for this article, but he has strongly defended himself in court and has blamed Sunbelt's current problems on Thomas J. Wageman, who succeeded him as chief executive in 1986.

Sunbelt posted a loss of $1.3 billion in first three months of 1988, the worst ever in the savings and loan industry. Then, on Aug. 19, federal thrift regulators effectively nationalized Sunbelt and lumped it together with seven other failed thrifts as part of the costliest S&L rescue ($5.5 billion) ever tried by the U.S. government.

Today, Sunbelt stands as a glaring example of why the Federal Savings & Loan Insurance Corp., the thrift industry's deposit-insurance fund, is so deeply in debt. Troubles in Texas that mirror those at Sunbelt have played a major role in the thrift industry's ballooning losses, which have already surpassed $9 billion in 1988.

A possible taxpayer bailout of FSLIC will loom large over the 101st Congress, which convenes in January. The cost of a bailout for FSLIC, which foots the cost of thrift failures, is estimated at from $50 billion to $100 billion and is rising at a rate of $1 billion a month.

Sunbelt's rise and fall also mirror the vicissitudes of the Texas economy in this decade--so brisk early on and so lame down the home stretch. Soaring oil prices fueled a real estate boom, then plunging prices helped trigger a bust.

"In Texas, we don't have a problem," Wageman said in an interview at Sunbelt's headquarters. "We have a collapse."

The major complaints about McBirney, who resigned as Sunbelt's top executive 2 1/2 years ago, are contained in a company lawsuit filed in June against 14 former Sunbelt directors, including McBirney, and its erstwhile outside accounting firm, Grant Thornton.

The picture of Sunbelt that emerges from the court papers--and buttressed by interviews and local news reports--is one of a cozy world where lenders, directors, borrowers and brokers made big dollars scratching each other on the back.

According to the lawsuit, Sunbelt violated dozens of prudent lending rules as it loaned hundreds of millions of dollars on development projects that were not economically viable or properly supervised. Though most of its assets were in Texas, the thrift also owned about $700 million in commercial real estate in Southern California.

McBirney took Sunbelt Savings on a "4 1/2-year spree of aggressive real estate lending" though neither he nor his business associates had "any significant experience in real estate lending" before 1981, the suit charged. Sunbelt was run more like a "speculative real estate investment company . . . than as a federally insured financial institution."

In its heyday from 1983 to 1986, Sunbelt Savings had few equals among lenders when it came to frills. The financial institution owned seven airplanes between 1982 and 1987, court records show, while McBirney ran up company-paid limousine bills of nearly $70,000.

At its nadir on Aug. 19, Sunbelt Savings had one of the worst balance sheets in the industry. Its debts exceeded assets by $1.9 billion.

Wageman, 54, and McBirney, 35, hail from opposite ends of the banking industry and have butted heads in recent months like two angry rams.

Their conflict is spelled out in the June lawsuit as well as a countersuit McBirney filed several weeks later in which he called Wageman's management at Sunbelt "a complete and unmitigated disaster." Sunbelt was a "successful, rapidly growing and financially strong operation" while he was there, McBirney claimed.

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