Ailing Mercury S&L; Foreclosing on 2 Marriott Hotels

Mercury Savings & Loan, fighting for its financial life, said Wednesday that it has initiated foreclosure proceedings on the Irvine Marriott and Tulsa Marriott hotels in an attempt to recoup $60.7 million in overdue loans.

Officials of the Huntington Beach-based thrift said the foreclosure action forced Mercury to report $32 million in writedowns for the last quarter of 1989, rendering it insolvent under recent federal law and thrift regulations. Under accounting principles, a thrift must devalue loans on properties that go into foreclosure. Last year, Mercury filed lawsuits against Marriott Corp. to recover portions of unpaid loans.

The foreclosure action also will result in the eventual sale of two hotels that are among the major inns serving their respective areas.

Mercury Chairman Leonard Shane said he hopes to fully recover the unpaid loans by selling the two hotels. The proceeds would help to re-establish Mercury’s capital, which was well below regulatory requirements before the writedowns. The S&L; has not released its 1989 earnings. It lost $5.4 million in the first nine months last year.

Mercury’s action also takes on several major hotel players. Marriott built the hotels in Irvine and Tulsa, then sold them to limited partnerships in 1984.

Marriott said in a prepared statement that it regretted Mercury’s action. The company, based in Bethesda, Md., said it has long-term agreements to manage both properties and intends to continue operating the hotels.

The partnerships owe $85 million on the loans, nearly $61 million of which is owed to Mercury, the S&L; said. Other lenders also participated in the loans, but Shane would not reveal their names.

The writedown leaves Mercury with a negative net worth--its liabilities exceed its assets--under all three stringent capital tests imposed by a federal law enacted in August to bail out the savings and loan industry. The negative net worth means that the institution is insolvent, without any capital to act as a final reserve against future losses.

Federal regulators would not say if they plan to take over control of Mercury yet.

Last week, they imposed severe restrictions on the S&L;, prohibiting it from making any new loans or investments.

Shane, Mercury’s co-founder, met with federal regulators in San Francisco on Wednesday to try to ease their order so the institution could resume making loans of up to $500,000 on single-family houses. He would not discuss the results of the meeting. Regulators also refused to comment on the meeting.

Industry analysts say it is unlikely that Mercury can recover from the latest blow to its financial condition. But regulators may not seize the S&L; any time soon because they have their hands full with more seriously troubled thrifts elsewhere, said Michael Abrahams, an analyst with Bateman Eichler, Hill Richards in Los Angeles.

“The whole thing is a damn shame,” Abrahams said. “He (Shane) could have sold that institution for a lot of money two years ago, and he didn’t. There were an awful lot of bids for well above what the stock is trading at now.”

Mercury said that about two-thirds of the its $32-million writedown was attributed to the loan defaults. The remaining amount was attributed to continuing accounting adjustments it has been taking throughout 1989 because of erroneous calculations made in the mid 1980s. The S&L; also has been hurt by commercial loans that have soured and by high operating costs.

Mercury’s stock closed Wednesday at 93.75 cents a share, up 6.25 cents from Tuesday’s close.