State Seizes 13 Financial Firms : Thousands of Coloradans Trapped in Banking Crisis

When the telephone rings in the nearly deserted Presidents Industrial Bank, head teller Mary Bonner picks it up with a certain trepidation. She has come to expect the panicky voices on the other end, the anger and the frustration of customers so loyal they know her by name.

“I’ve never been in this situation before,” Bonner explains. “I didn’t know how to tell people they couldn’t have their money.

“Now I do.”

As the stock market churned in the wake of Black Monday, another less-noticed financial catastrophe was engulfing thousands of people far from the pinstriped panic of Wall Street.

One after the other, the state of Colorado took control of 13 industrial banks in a number of small towns when they appeared to be unable to meet a deadline for getting federal insurance.

More than $40 million in deposits has been frozen indefinitely while the state and bankers wrangle over a rescue plan.

In economic terms, it is a mere drop in the bucket. There are 89 industrial banks in Colorado--most of them federally insured--and their deposits total more than $514 million.

But in human terms, the impact could be devastating: house payments, car loans, life savings, college tuitions, Christmas funds, retirement nest eggs, emergency cash, mad money. Untouchable, and, for some, perhaps irretrievable.

John and Anita Nielsen sank their life savings in the Presidents Mortgage Industrial Bank of Golden, which, along with a sister bank in Evergreen, has since filed for bankruptcy.

“We were foolish enough to put all our eggs in one basket,” John Nielsen lamented.

The Nielsens were among about 150 concerned depositors to show up one recent evening for a three-hour meeting with bank President Ron Weiszman, who implored them “to work this thing out with me as a team. I’m asking for some forbearance.”

Mrs. Nielsen’s voice rose softly from the third row.

“Everything we have is in your bank,” she began. “We also encouraged my mother to invest her meager savings in your bank. She is 84 years old and we don’t know if she is going to be here tomorrow. If something does happen to her, are we going to have to take a loan out to bury her?

“My husband and I are going to be retiring in the near future. We put our whole savings into your bank. If we get back only 10 cents on the dollar . . . what are we going to do?

‘Don’t Even Have Pictures’

“It might be two years, it might be four years, it might be five years. I wish we would have played the stock market or taken a trip to India. At least we’d have something. This way, we don’t even have pictures to show our grandchildren.”

Weiszman listened grim-faced as similar tales came from row after row. Three police officers had been dispatched to keep a watchful eye on the gathering at the Colorado School of Mines, but there was no trouble.

As the evening wore on and the banker’s explanations wore thin, bewilderment turned to bitterness.

The audience groaned and snickered when Weiszman insisted that, ultimately, “the real blame . . . lies with the Congress of the United States and the President (for) failing to deal with the budget deficit and the foreign trade deficit.”

When one depositor asked Weiszman where he kept his own money, someone in the audience offered a sarcastic reply: “In a coffee can, probably.”

Industrial banks were organized in the 1920s for blue-collar workers who found regular banks unwilling or unable to accept small deposits or make small loans. The industrials were smaller, more personal, oriented toward individuals and--in a state that has no branch banking--convenient for rural customers. They were places where a low-income millworker might find the money for a car or a house.

Clients More Upscale

“They filled a void,” said Banking Commissioner Richard Doby. “They were like credit unions. Now, it’s doctors, dentists, attorneys, CPAs, accountants and other professionals dealing with industrials.”

Donn Waage, senior vice president of First Interstate Bank of Denver, finds the industrials “anachronistic.”

“They are relatively common in the West. They have very small capitals, which is the reason for the trouble now,” he said. The stronger ones are insured by the Federal Deposit Insurance Corp., Waage added, “and the weaker ones wouldn’t make it, and, of course, they were the ones who needed it most.”

The industrials typically have less than $500,000 equity, and for a long time were not required to have any deposit insurance at all. In exchange for that higher risk, depositors earned higher interest. In 1973 the state demanded that the deposits be insured for at least $5,000 per account, and a private insurance fund was established. By this year the insurance had been raised to $40,000 per account.

When thrifts and small savings and loan institutions in Ohio and Maryland went through a crisis period that resulted in failures a few years ago, Colorado decided that the industrials must go further and obtain federal insurance.

They had until Sept. 1 to apply and until July, 1989, to get FDIC or Federal Savings and Loan Insurance Corp. approval.

Taken Over by State

Then Presidents Mortgage in Golden and its sister industrial in Evergreen ran into financial trouble and were taken over by state regulators.

The private insurance fund, the Industrial Bank Savings Guaranty Corp., was found to have only $4 million in assets and $40 million in potential liabilities spread among the 13 industrials.

Doby ordered 10 industrials that did not qualify for federal insurance to stop taking deposits because they could not be adequately protected by the private fund. Within six weeks, 13 were completely under state control--some voluntarily as a last-ditch effort to prevent a run by panicky depositors.

The last time the Washington-based American Financial Service Assn. counted, back in 1983, there were about 1,000 industrial banks left, scattered across 21 states. The number is known to have dwindled since then as commercial banks increasingly offer competitive interest rates.

Problem Unlikely to Spread

Colorado has the second-largest concentration of industrials, behind Tennessee. The current problem seems to be confined to Colorado and is unlikely to spread.

Nevertheless, nervous depositors have inundated Doby’s office with calls and letters, prompting the Colorado Bankers Assn. to launch an ad campaign aimed at reassuring customers of the state’s 425 commercial banks.

The ads declare: “$100,000 FDIC insurance guarantees you have a good night’s sleep.”

Mary Bonner is lucky to sleep well these days. The teller takes most of the calls at the paralyzed Golden branch of Presidents.

‘I Try to Calm the People’

“People are panicked. They’re crying, they’re upset. I try to calm the people who call,” she said. “I know they’re losing their homes and life savings. We just can’t guarantee that they’re going to get their money.

“Some ask me, though, ‘Mary, why didn’t you tell me the situation?’ I just didn’t know.”

Commissioner Doby is uncertain how long the deposits will remain frozen in the 8,296 Colorado accounts or how much the customers might recover. Two of the seized industrials have sold their assets and returned 50 cents and 70 cents on the dollar.

Henry Solano, executive director of the Colorado Department of Regulatory Agencies, promises that all actions by the banks, the insurer, the commissioner and the regulator will be reviewed. At this point, he said, there is no evidence of wrongdoing.

Legally, the state “is not obligated to provide any money,” Solano said, but a bailout is among the options being explored.

Solano suggested that, given the tight economy in Colorado and a competitive financial atmosphere, the industrials might have prevented the crisis by being “more conservative in their business activities.”

Now a High-Stakes Gamble

He said the current economic climate essentially turned what normally would be considered low- or moderate-risk management choices into a high-stakes gamble. For example, industrials would be more likely than a commercial bank to make a high-risk loan and accept farmland as collateral, although property value in Colorado has dropped substantially with the oil slump.

What all this means to Anita Nielsen is that she will have to cancel plans for a trip to her native Switzerland next year. It would have been her first homecoming in two decades. Her grown son will have to take out a high-interest loan to finish building his house; he deposited his $20,000 building fund in his parents’ bank two months ago to take advantage of a half-point higher interest rate.

During the meeting with Weiszman, a desperate depositor in the front row raised her hand and spoke up:

“My children are asking me daily how we’re going to eat next week,” she said. “My mortgage company doesn’t understand and my children don’t. I’m a single mother who was recently laid off. I’m under the gun. Really under the gun.”

A Different Message

A white-haired woman stood up in the back. Hazel Archer, at 78, cannot afford to lose the money she deposited in an industrial bank either. But she had a different message for the angry room.

“Most of you haven’t been through this before,” she said. “You don’t really know. . . . What made the big crash (Great Depression) so awful was the run on the banks, the rumors.

“My father lost everything. He had always been taught that you can trust your banker. But we managed to live and we learned to share.”

Archer shook a gnarled finger at the single mother in the first row.

“Don’t you let your family go hungry,” she admonished. “I have more food than I need in the cellar, and I’ll share it with you.”

Times researcher Dallas Jamison contributed to this story.