Sun Savings’ Successor, Flagship, Is Acquired by Chicago Group

SAN DIEGO —  A Chicago-based investor group has acquired Flagship Federal Savings & Loan--the successor to failed Sun Savings & Loan--for $2.5 million in cash, Federal Home Loan Bank Board spokesman David Loveday said Friday.

The investor group is led by Bruce J. Frey, chairman of Chicago-based BJF Development Corp. Frey’s company has been involved in property management and real estate sales around the country, according to a BJF Development spokesman.

The Federal Savings and Loan Insurance Corp., which insures deposits at S&Ls;, will contribute $25.4 million in cash as part of the Flagship sale. FSLIC also will “provide capital loss coverage on certain troubled loans,” according to Loveday.

Flagship, created when Sun failed on July 18, 1986, was the 145th troubled thrift resolved by federal regulators during 1988, according to Loveday. During 1987, FSLIC resolved just 48 cases.

Flagship reported $96.9 million in assets and $104.2 million in liabilities on Aug. 31, 1988. Flagship also reported negative regulatory capital of $7.3 million.

“That negative regulatory capital figure will come to a positive figure,” according to FHLBB spokeswoman Martha Gravlee. “We can’t say right now what it will be.”

As part of the sale, FSLIC will receive 2,000 shares of Flagship’s preferred stock, which will be convertible to 12% of the S&L;’s common stock. FSLIC also will receive 25% of the tax benefits that Flagship’s anticipated operating losses generate during the next two years.

Scott Taylor, a former thrift industry regulator with the FHLBB and FSLIC, will serve as Flagship’s new president, according to the BJF spokesman. Taylor left FSLIC in 1986 to join California Federal Savings & Loan as an executive vice president. He joined BJF Development earlier this year, the BJF Development spokesman said.

FSLIC will indemnify Flagship’s new owners against unresolved claims and challenges to the transaction, Loveday said.

In a related matter, former Sun President Daniel W. Dierdorff, who pleaded guilty in July to two felony charges stemming from his tenure at Sun, will be sentenced Dec. 12 in U.S. District Court in San Diego. Assistant U.S. Atty. Yesmin Saide has recommended that Dierdorff be sentenced to the maximum 10 years in prison for the two felony charges of misusing Sun’s funds.

In all, $13 million of the $120 million in losses that Sun reported before its failure were “traced to (Dierdorff’s) questionable loan and business transactions,” according to a highly unusual presentencing report released Nov. 4 by Saide.

Great Western Savings & Loan has operated Flagship under FHLBB’s management consignment program. Flagship has five branch offices in San Diego and Orange counties.

Federal regulators had hoped to sell Flagship during early 1988. In mid-1987, the Great Western management team at Flagship predicted that the S&L; would be ready for sale by the end of 1987. Federal regulators on Friday declined to comment on what delayed the sale.

Of the 145 failed institutions that FSLIC has resolved this year, it arranged mergers or acquisitions for 119, recapitalized one, and used its cash reserves to pay depositors at 25.