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Fortunes Fade for Tattered S&L Trade Group : Thrifts: Industry scandals and staggering bailout costs have rocked the once all-powerful U.S. League of Savings Institutions.

November 05, 1989|JAMES BATES | TIMES STAFF WRITER

Not long ago, the U.S. League of Savings Institutions had clout that few trade groups enjoy.

It picked people who regulated it. It wrote laws that sailed through Congress, and torpedoed ones that it didn't like. It wined and dined politicians nightly. Most of the time it got its way.

"The league was all powerful," said Edwin J. Gray Jr., who regulated the thrift industry from 1983 to 1987 as head of the Federal Home Loan Bank Board.

Now the good times are over. Today, the league, shrunken and humbler, gathers in Chicago for its annual convention. Like the thrift industry that it represents, the league is in tatters. It is losing members by the hundreds. Its influence and credibility are nowhere near what they once were.

Since 1985, some 600 thrifts have dropped off its membership rolls, leaving 2,765. Most of those that left were insolvent S&Ls that were acquired, merged into other thrifts or went out of business. League officials expect that 200 or more may be gone by year-end as regulators continue mopping up troubled institutions as part of the federal government's huge savings and loan bailout.

The membership drop has caused big financial headaches for the trade group. Facing a cash crunch, the league was forced to slash its budget for next year to a projected $27 million. That compares to $32.5 million in 1988. Among the casualties: 50 employees lost their jobs earlier this year, representing more than 10% of the league's workers.

More challenging than stemming the U.S. League's financial and membership problems may be repairing the image of both the trade group and the industry. Few industries have been subjected to the public flogging that the thrift industry and its trade group took this year.

Taxpayers are angry at having been blindsided by a staggering savings and loan fiasco. Losses are so severe and climbing so fast that the bill for taxpayers, some estimate, may eventually exceed $1,000 for every man, woman and child in the nation. It didn't help the industry image that taxpayer-insured deposits at some rogue institutions were squandered on paintings that hang in the Vatican, antique car collections, French chefs and 605-room resorts.

Whereas the league once got its way in legislative scraps, this summer it lost nearly every major fight in shaping the bailout and the stricter regulations that came with it. Legislators who once were cozy with the league scorned it. Many politicians and industry officials say the league shoulders much of the blame for the thrift mess, for fighting such things as restrictions on risky investments that might have helped stem the red ink.

"Its image is at an all-time low," said Richard Pratt, who headed the Federal Home Loan Bank Board before Gray and now heads the mortgage capital markets operations at Merrill Lynch & Co.

Earlier this year, investor Warren E. Buffett and partner Charles T. Munger, who control Mutual Savings, a small thrift in Pasadena, pulled the institution out of the league in disgust. Had it been anyone else, it probably would have gone unnoticed. But this was Warren Buffett talking, the nation's second-richest individual and one of its most respected investors.

At the time, the league was fighting some provisions in the federal bailout eventually signed by President Bush in August. In a letter to the league, Munger went so far as to say its actions were as if Exxon had encouraged drinking by tanker captains after the Valdez oil spill.

"It was the biggest mess and biggest scandal that ever happened to financial institutions in the United States. And the league had almost a 100% record of being on the wrong side of the issues," Munger said in an interview.

Needless to say, the trade group believes that it has been unfairly picked on.

"My gut tells me that the league was a convenient whipping boy, punching bag and fall guy," said Frederick L. Webber, president and chief executive of the league.

No one, league officials argue, knew the extent of the thrift mess when the first signs appeared. Government estimates were particularly bad, they add. And policing rogue members, they argue, is not the job of any trade group.

B. R. (Barney) Beeksma, outgoing chairman of the league, contends that the worst thrift owners have been purged from the business, particularly those that ran the high-flying institutions in Texas and California. He said this reflects a much more conservative group that favors such things as stronger capital, the financial cushion that thrifts must maintain.

"It's taken a bum rap," Beeksma said.

Webber, a former soft-drink industry trade official, has the job of restoring the league and keeping it financially sound. In general, he gets good reviews so far.

"It's one of the toughest trade association jobs in Washington," Webber said.

Webber took over as chief executive late last year from William O'Connell, under whose leadership the association reached its zenith in the mid-1980s while becoming so controversial.

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