Federal regulators on Friday seized insolvent FarWest Savings, a large thrift controlled by the wealthy Belzberg brothers of Canada, because of mounting losses from risky junk bonds and sour real estate loans.
The failure of FarWest, which had $3.8 billion in assets, ranks among the largest in Southern California. Federal regulators would not estimate the cost of the collapse to taxpayers, but one industry analyst said it could approach $500 million.
FarWest's demise means that taxpayers will be stuck bailing out a savings and loan controlled by one of the wealthiest families in North America. The net worth of the three Belzberg brothers has been estimated at about $400 million.
Because of the Belzbergs' vast wealth, the FarWest takeover raises further questions about a system that has allowed thrift owners to use federally insured deposits to make lucrative but risky investments, knowing taxpayers ultimately would be there to pick up the bill if the investments went bad.
"If they win, they win. But if they lose, they still don't lose. Taxpayers lose," said Miami savings and loan consultant Kenneth H. Thomas.
The takeover, which had been expected for several months, came after the thrift's owner, FarWest Financial Corp. in Newport Beach, refused to pump more than $300 million into the institution to restore its capital base.
The takeover is a blow to the Belzbergs, who were among the most feared and savvy corporate raiders in the 1980s. The Belzbergs owned 57% of the stock of FarWest Financial.
FarWest is another institution whose failure is linked to junk bond king Michael Milken and Drexel Burnham Lambert Inc. At one time, FarWest held more than $600 million in junk bonds, which have since been sold or lost much of their value.
The Office of Thrift Supervision placed FarWest in a conservatorship to be managed by the Resolution Trust Corp., the federal agency created to sell assets of troubled thrifts. Its operations will continue as normal, with all 28 branches open and deposits up to $100,000 insured.
An estimated 3,000 of the 86,269 depositor accounts at the thrift contained $100,000 or more. Regulators would not reveal the amount of uninsured deposits and would not say whether those funds would be paid to depositors.
As of Sept. 30, FarWest reported assets of $3.83 billion and was insolvent by about $110 million. Full-year financial figures will not be available until next month, a regulatory agent said. The thrift lost $42 million in 1989 and $119 million in the first nine months of 1990.
FarWest Savings President Charles H. Green, a former FarWest Financial executive and the thrift's fourth president since mid-1988, resigned immediately after the takeover. Regulators appointed banking industry veteran J. Alan Blodgett to serve as managing agent of FarWest Savings.
Other executives will remain with the thrift, according to a RTC spokesman. Officials at FarWest Financial, including Chairman William Belzberg, could not be reached for comment.
Federal regulators also on Friday seized Malibu Savings Bank, a Costa Mesa-based thrift with three offices and $154 million in assets. The thrift, which was crippled by bad real estate loans, was placed in receivership and will resume operations as Malibu Savings Bank, FSB.
FarWest's demise was caused largely by its real estate lending policies and its huge investments in junk bonds. A 1989 federal thrift law required S&Ls to eventually dispose of their junk bond holdings.
Once-profitable junk bonds have plummeted in value in the past year, at the same time that regulators began pressing thrifts to carry the bonds on their books at their market value rather than their purchase price.
FarWest is a spectacular failure for Hyman, William and Sam Belzberg, Canadian financiers once so feared as corporate raiders that companies they invested in regularly paid them off to go away.
Operating through their flagship, Vancouver-based First City Financial, the Belzbergs made an estimated $250 million in the 1980s on "greenmail," a term used to describe the money raiders made from fearful companies they threatened.
FarWest now joins the list of S&Ls that have failed in part because of junk bond investments. Others on the list include CenTrust Savings in Miami and Gibraltar Savings. The government has sued Drexel and Milken on behalf of several of the thrifts to recover some of the junk bond losses.
Drexel's biggest customer, Columbia Savings in Beverly Hills, is expected to be seized soon, once it arranges to sell its junk bonds.
"All of the bigger junk bond holders have been taken over or are doomed to be," consultant Thomas said.
FARWEST S&L AT A GLANCE Federal regulators Friday took control of the thrift and said it was being operated in an "unsound and unsafe manner." It will remain open under government supervision and all deposits above $100,000 are protected.
Location: Newport Beach
Owner: Public company; majority of shares held by Belzberg brothers of Canada.
Assets: $3.83 billion
Liabilities: $3.86 billion
Tangible capital: -$109.8 million
Financial performance: Lost $119 million in the first nine months of 1990
Problems: Risky investments in junk bonds and real estate.
Source: Office of Thrift Supervision