No business deal has drawn more fire during the gubernatorial campaign than Richard C. Blum's stake in a financially troubled savings and loan in Oregon.
A TV ad for Sen. Pete Wilson alleged that Blum and his wife, Dianne Feinstein, "own" the thrift and profited from a "sweetheart" government bailout in 1988.
But according to documents and sources familiar with the matter, Blum money helped rescue the thrift.
First, records show the investment is held by Blum's firm, not by him and his wife. Second, outside accountants who recently evaluated the deal for regulators offered no criticism of its terms. In addition, the amount of government aid was decided months before Blum became involved.
Most of the 1988 thrift bailouts were negotiated between government regulators and private investors. Critics have argued that the government was outsmarted, resulting in deals that were too generous with taxpayer money.
But with Jackson County Savings & Loan in Medford, the rescue's terms were set in advance, before a purchaser was on the scene. The regulators determined that the government would provide $63 million in assistance and require $14 million in cash from investors. The new money was to be raised by selling stock in the thrift to the public.
A Columbus, Ohio, investment bank was hired by the regulators to sell the stock in October, 1988. Charles R. Webb, one of the Columbus bankers, said less than half of the stock was sold during the next two months and the deal was in danger of failing.
Webb said he then contacted Carl D. Gustavson, a San Francisco bank executive and a Feinstein appointee to the city Redevelopment Commission, and Gustavson agreed to try to raise the remaining cash.
Two San Francisco investment bankers said they turned down Gustavson's solicitation, but Blum eventually agreed to provide some of the needed cash. His investment firm wound up acquiring a 24.9% interest in Jackson County Savings and a seat on its board.
If Blum had not stepped in, it would have cost the government an estimated $87.6 million to close the institution and pay off depositors, according to Webb and a regulatory executive familiar with the transaction.
In 1989, the savings and loan reported a profit of $1.3 million, a figure that reflected $4.9 million in government assistance.
The Wilson campaign has refused to back down from the ad's assertions. "Blum has a controlling stock interest and we're just saying that he was a beneficiary of the government's generosity," said Bill Livingstone, Wilson's campaign spokesman.