Regulators OK Sale of S&L; to Simon Group

Regulators gave final approval Thursday to the sale of Southern California Savings & Loan to a group of investors led by former U.S. Treasury Secretary William E. Simon and former Federal Reserve Board Vice Chairman Preston Martin.

Terms of the sale call for the outside investors, including Simon’s group and affiliated Australian investors, to pump $43 million into the crippled financial institution, which is based in Beverly Hills. Federal Savings & Loan Insurance Corp. will provide another $218 million in cash to bring the insolvent savings and loan into compliance with capital requirements.

Savings and loan regulators placed Southern California Savings into receivership in June, 1985. Plagued by bad loans, it has been kept open under special regulatory supervision of FSLIC and its parent agency, the Federal Home Loan Bank Board. The company has 28 branch offices and $1.3 billion in assets.

The sale of Southern California Savings will be costly for the FSLIC, which itself was recently declared insolvent by government auditors and is now awaiting a bailout from Congress. The $218 million represents about one-sixth of the agency’s cash reserves, according to Robert Sahadi, the bank board’s chief economist.

But regulators also say the sale is less expensive than a liquidation, which would have cost an estimated $238 million to $280 million.

The sale agreement also includes a precedent-setting clause that allows FSLIC to seize the Southern California Savings if its capital falls below 3% of liabilities, a minimum health standard for banking firms. The clause is intended to remain in effect for up to 12 years but would be shortened or eliminated if management meets certain capital standards or provides a perpetual guarantee of satisfactory net worth.

Normally, regulators must wait until an ailing S&L;’s capital runs out completely before they take control of it. Regulators said they intend this agreement as a model for future supervised sales.

“It will allow us to get hold of an institution before it’s insolvent,” Sahadi said.

The Simon-led investors have acquired several financial institutions in California and Hawaii in the past year and are still negotiating final approval to acquire Bell Savings & Loan in San Mateo, another insolvent S&L; under tight regulatory control.

A new holding company named SoCal Holdings will act as the parent company for Southern California Savings. Most common stock in the holding firm will be owned by the Simon-led investors.