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Ex-Gibraltar S&L Chief Fixes Blame : Thayer Says Money Brokers Caused Liquidity Problems

April 04, 1989|TOM FURLONG | Times Staff Writer

The reluctance of money brokers to sell certificates of deposit for Gibraltar Savings was a major cause of the liquidity problems that led U.S. banking regulators to seize control of the giant savings and loan last week, the company's former chief executive said Monday.

"Certain brokers would not roll over our CDs," said James N. Thayer, who was ousted as Gibraltar Savings' chief executive as part of the regulatory action. "Without question, that affected our liquidity."

Continues to Assess Impact

Gibraltar Savings' operations in three states, including California, were taken over last Friday by banking regulators following a sharp rise in deposit withdrawals. The businesses were placed in a conservatorship now being run by John Carr, former vice chairman of First Nationwide Bank in San Francisco.

Thayer remains chief executive of Gibraltar Financial Corp., the Beverly Hills-based parent company, which issued a statement Monday seeking to clarify press reports stating that the regulatory action had wiped out the investments of stockholders and bondholders.

"GFC is continuing to assess the financial impact of last Friday's actions . . . on it and its securities holders," the statement said. Though the savings and loan operations are in a government conservatorship, Gibraltar Financial remains the legal owner of those businesses, Thayer said in a telephone interview.

At the same time, Gibraltar Financial officials say the parent company has few employees or assets of its own. Though there is a "ray of hope" for securities holders, Thayer said, "it's not blinding."

Jay H. Lustig, bond analyst for Drake Capital Securities in Santa Monica, said many of the bondholders are retirees interested only in steady income. Most invested in Gibraltar Financial bonds that have an interest rate of 9.25%.

"They just buy the bond, get the interest every six months, and that's all they know," Lustig said.

A company spokesman said Gibraltar Financial's stock, which has been selling below $1 a share, will resume trading today after being suspended last Friday.

Gibraltar Savings was believed to be losing hundreds of millions of dollars in deposits in the days preceding the takeover, though its total deposits still exceed $9 billion. A banking regulatory spokesman said Monday that some withdrawals are still taking place but indicated that the problem is manageable. "It's nothing that we didn't expect," he said.

At the end of 1988, nearly one-third of Gibraltar's deposits were raised through money brokers--savings known as brokered funds. Typically, brokered funds are raised by investment banking firms for customers looking for high returns on their savings.

Did Not Renew CDs

It was these funds that Gibraltar Savings had so much trouble keeping because money brokers did not want to renew customer CDs without regulatory assurances that the rate and terms of the deposits would be honored in the event of a government takeover, Thayer said. Such assurances were not received until last Friday, the day of the takeover.

On another front, Standard & Poor's said it has lowered the credit rating on the financial institution's subordinated debt securities to single C from triple C-minus. "Given the thrift's status in conservatorship, S&P doesn't expect timely payment to be made on the subordinated debt," S&P said.

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