Making good on a previous threat, Gibraltar Financial on Thursday sued banking regulators for seizing the firm's thrift operations, known as Gibraltar Savings, and placing them into a government-supervised conservatorship in late March.
"The appointment of a conservator was a clear act of bad faith," according to the lawsuit, filed in federal court in Los Angeles by the Century City law firm of Wyman Bautzer Kuchel & Silbert.
"We felt we were on firm ground when we took those decisions and we still feel that way," said Karl Hoyle, a spokesman for the Federal Home Loan Bank Board, one of four regulatory agencies named as defendants in the suit.
Gibraltar Financial also named its two subsidiaries as defendants, both of which are named Gibraltar Savings. With retail operations in California, Washington and Florida and combined assets of about $15 billion, Gibraltar Savings is one of the country's biggest thrifts.
'Seized Solvent Association'
The government conservatorship has left Beverly Hills-based Gibraltar Financial, the parent company, in an extremely tenuous position. It now has only a handful of its own employees and is without the financial resources to pay noteholders and bondholders.
According to the lawsuit, Gibraltar Savings still had a positive net worth at the time of the seizure, even though it had been beset by losses on bad loans and rising interest rates. "This was the first time in its history that FSLIC seized control of a solvent association," the suit said. (FSLIC is the Federal Savings & Loan Insurance Corp., the deposit-insurance agency that is also as a defendant in the suit.)
But outside analysts argued that Gibraltar Savings was solvent on paper only and said the thrift itself recently disclosed that the net worth of its California operations will be wiped out by losses in an upcoming program to sell money-losing mortgage-backed securities.
The lawsuit largely echoed past complaints about allegedly inept and heavy-handed regulatory treatment in recent years, including a seizure of $11 million. It was the seizure of that money that has prevented Gibraltar Financial from making interest payments to its major creditors.
Gibraltar Financial issued a strongly worded statement last month suggesting that a lawsuit was in the works. Terming its regulatory treatment "shocking and irresponsible," it vowed that it was going to seek "appropriate recompense" for damages done. The suit seeks a return of the $11 million and a court-appointed director to oversee Gibraltar Savings.