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Great Western Deal for Florida S&L Is Biggest U.S. Bailout

June 30, 1990|JAMES BATES | TIMES STAFF WRITER

Great Western Financial agreed Friday to buy CenTrust Federal Savings Bank in Florida in the biggest taxpayer bailout yet of a savings and loan. The deal marks the end of a thrift that came to symbolize some of the worst examples of greed and gluttony in the nation's thrift debacle.

Taxpayers will pick up a bill of about $1.7 billion for CenTrust. Great Western, the Beverly Hills parent of Great Western Bank, will pay $86.4 million for CenTrust's 71 branches and $5.2 billion in deposits. The deal makes Great Western Florida's biggest thrift.

Former CenTrust Chairman David L. Paul was one of the biggest of the big spenders among savings and loan executives. Last Saturday, auctioneers in Miami sold about 16,000 items Paul bought with CenTrust's taxpayer-insured deposits, including 1,440 Baccarat goblets, crystal toothpick holders, a cigar humidor and a 12-place setting of Limoges china.

Separately, the government disclosed that the cost to bail out what had been Gibraltar Savings was a surprisingly high $628 million, $522 million of that for Gibraltar's California operation based in Simi Valley. Private estimates had totaled about $400 million.

Security Pacific Corp. beat out Great Western earlier this week to buy the Gibraltar operations, paying $141 million plus an additional $3 million for an option to buy up to $1 billion in assets. Security Pacific receives 83 Gibraltar branches in California, six branches in Washington state, $5 billion in deposits and $1.7 billion in home loans.

Friday's actions on CenTrust and 14 other thrifts put the government over the top in meeting its goal of selling or closing 141 failed thrifts by today.

In all, the government said it actually disposed in that time of 155 thrifts--17 of them in California--through sale or liquidation at a cost to taxpayers of $29 billion, as part of what was called "Operation Clean Sweep." The goal was set in March by L. William Seidman, chairman of the Resolution Trust Corp., amid criticism by Congress and others that the thrift mop-up agency was moving too slowly.

Government thrift officials were obviously pleased that they met Seidman's target, which some skeptics doubted they could reach. "Operation Clean Sweep has brought greater stability to the nation's financial system," Seidman said in a statement.

Still, the government's three-month spree was made possible largely because it sold only branches, deposits and low-risk home loans while stripping away the bad assets such as risky junk bonds and empty office buildings that led to the demise of the thrifts in the first place. In the case of CenTrust, the government is still stuck with $3.1 billion in junk bonds, loans and various securities.

Although selling the thrifts reduces the government's operating costs, selling those bad assets is critical to cutting the rising costs of the government's S&L bailout, estimated to run $500 billion over the next 30 to 40 years.

Although the biggest single bailout to date, the CenTrust failure may be eclipsed by the collapse of Charles H. Keating Jr.'s Lincoln Savings and Loan Assn. in Irvine. The Lincoln case is expected to cost taxpayers about $2 billion.

Although Great Western is paying $86.4 million for CenTrust, the deal actually will cost the firm about $61 million. That's because Great Western is taking over $3.3 billion in CenTrust home loans, consumer loans and securities and turning them over for $25 million to Merrill Lynch Capital Markets to sell.

Great Western receives $5.2 billion in deposits. But only $1.78 billion of those deposits are so-called core deposits, which represent deposits from more loyal customers who are likely to stay with the institution. Paul funded CenTrust largely with deposits from Wall Street money brokers who shift their money around to institutions offering the highest rates.

Great Western agreed last July to buy 63 CenTrust branches for about $100 million, but the deal fell through after regulators seized it. On a comparable basis, the government could have reaped about $40 million more had it let the Great Western deal stand.

In a separate deal, Great Western is acquiring 18 branches with $700 million in deposits for $3.75 million that had been part of Gibraltar's Florida operation. Overall, Great Western now has 154 retail branch offices in Florida and deposits totaling $6 billion.

Four other California thrifts have operations in Florida: GlenFed in Glendale, H. F. Ahmanson in Los Angeles, First Nationwide in San Francisco and CalFed in Los Angeles.

FROM GOLDEN STATE TO SUNSHINE STATE California savings and loans with branches in Florida.

Number of Number of Initial Florida Total branches in branches in S&L expansion branches Florida California CalFed Feb., 1982 199 50 138 First Nationwide Sept., 1981 210 28 48 GlenFed Nov., 1981 235 66 147 Great Western* May, 1983 384 154 213 Home Savings of America Dec., 1981 358 42 173

*Includes Friday's acquisitions of CenTrust Savings Bank of Miami and Gibraltar Savings Bank of Florida.

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