Mercury S&L; Ordered to Halt Lending, Investments : Thrifts: The Huntington Beach institution has been plagued with losses. It’s the fourth major S&L; in California to be hit with stringent restrictions this year.

Mercury Savings & Loan, struggling for a year to curb losses, said it was ordered Friday by federal regulators in San Francisco to halt all lending and investment activities.

The order does not affect the S&L;’s routine customer deposits nor its $3-billion loan-servicing portfolio. The S&L; also can fill pending commitments for loans and investments, but no new loans or investments can be made.

Leonard Shane, chairman of the Huntington Beach-based S&L;, said Friday in an interview that he will seek a meeting with regulators as soon as possible to try to ease the restrictions so that Mercury can make single-family home loans of up to $500,000.

Mercury is the fourth major S&L; in the state this year to be placed under such severe operating restrictions. The others are Valley Federal Savings & Loan in Van Nuys, Imperial Savings Assn. in San Diego and Santa Barbara Savings & Loan.

Mercury, which lost $5.4 million in the first nine months last year, has nearly run out of tangible capital, which is essentially the amount of cash it has as a final reserve against losses.

It said it doesn’t meet any of the three strict capital tests imposed under a federal law enacted in August to bail out the thrift industry’s deposit insurance fund. Its tangible capital is negligible, only 0.04% of assets at the end of September--well below the required 1.5% level. Its core capital, another test, was 1.54%, nearly half the required 3% level. No information is available on the third test, which weighs the risk of the S&L;’s loans and investments.

Shane, who formerly headed the thrift industry’s chief California and national trade groups, said his institution sent regulators a business plan and a plan for raising capital, but regulators have not yet responded to his proposals. Mercury essentially is reducing assets and trying to sell five Northern California branches in an effort to obtain cash.

Industry analysts and consultants are already writing the S&L;’s obituary, saying it is essentially insolvent and can be rescued only through a sale. Mercury has hired investment bankers to search for a possible suitor or investor.

The supervisory order is “tantamount to failure,” said Bert Ely, an industry consultant in Alexandria, Va. He said the order could be viewed as the regulators’ answer to Shane’s business and capital plans.

“Most institutions cannot survive very long under this type of order,” said Don Murray, a thrift accounting partner at the Irvine office of Deloitte & Touche, a national accounting firm. In similar situations, such letters simply put institutions in a holding pattern until regulators decide what to do with them.

Mercury has 24 branches and 800 employees.

If Mercury simply plans to sell assets to increase its capital, the restrictions may not hurt it badly, Murray said. But if the S&L; had planned to invest proceeds from asset sales to earn capital, then the restrictions pose serious problems, he said.

The S&L;, which had $2.25 billion in assets at the end of September, ran into serious problems with commercial and construction loans in the mid 1980s.

Real estate it obtained through foreclosures or bankruptcies left Mercury with a large number of properties that produced no income.

At the end of September, its repossessed properties amounted to nearly $14 million, or 11.1% of its assets. Well-managed S&Ls; typically keep that figure below 1%, industry analysts said.

In addition, accountants’ estimates of future earnings from servicing loans and of future tax liabilities were inaccurate a year ago. Mercury had to restate its 1988 profit and post a $13.8-million loss for that year. Those accounting procedures continued to plague the S&L; last year.

Though Mercury hasn’t invested in high-yield junk bonds or other risky investments that placed other S&Ls; in jeopardy, its accounting assumptions on future income constituted a risky venture, Ely said.

MERCURY SAVINGS AT A GLANCE

1989 In thousands Sept. 30 June 30 March 31 Total assets $2,251,616 $2,312,412 $2,473,209 Net loans 1,864,122 1,922,828 1,960,519 Deposits 1,859,839 1,916,814 1,999,015 Net income (qtr.) -3,885 -763 -768

Sources: Federal Home Loan Bank Board/Office of Thrift Supervision, Standard & Poors