Federal Regulators Seize Ailing Gibraltar Savings

Alarmed by large withdrawals of deposits, federal banking regulators Friday seized control of financially ailing Gibraltar Savings, one of California’s largest and oldest thrifts, and removed James N. Thayer as its chief executive.

The move was part of the U.S. government’s continuing effort to clamp down on insolvent and undercapitalized savings and loans across the country. Gibraltar Savings is the largest of 177 thrifts across the nation that have been taken over and placed into conservatorship in the past several weeks.

Gibraltar’s future is not certain, but President Bush has asked Congress to appropriate money to finance the closure or sale of many crippled thrifts across the country.

The seizure affects Gibraltar Savings’ businesses in California, Washington state and Florida, which together have $15.1 billion in assets, $9.1 billion in deposits and about 100 retail branch offices. The savings and loan operations are owned by Gibraltar Financial Corp., a publicly traded firm headquartered on Wilshire Boulevard in Beverly Hills.

Gibraltar Financial has experienced horrendous problems in recent years, including heavy losses on commercial real estate developments. Rising interest rates have also wiped out the profit margin on the firm’s large collection of fixed-rate assets, including home loans and mortgage-backed securities.

Last year, Gibraltar Financial reported a loss of $101 million on top of a $131-million loss in 1987. The losses cut heavily into the company’s capital, which is intended to act as a cushion against losses.

Despite the problems, regulators sought to reassure savers by saying that it will be “business as usual” in Gibraltar Savings’ branch offices. All deposits are insured up to $100,000 per account by the Federal Savings & Loan Insurance Corp.

The regulatory action was unusual because Gibraltar Savings still has about $383 million in regulatory net worth and remains solvent, at least on paper. But losses, nearly $46 million in the fourth quarter of 1988 alone, have snowballed, and deposits have been flowing out the doors in large amounts.

“There are liquidity problems,” confirmed M. Danny Wall, chairman of the Federal Home Loan Bank Board, a thrift regulatory agency. Though Wall said he did not know how large the deposit losses have been, he called them “significant” and said they sparked the regulatory takeover.

“This is a liquidity insolvency,” Wall said.

Still, the seizure came as a shock to Gibraltar Savings executives, who learned of the move about 10 a.m. when regulators moved in on company offices in Beverly Hills, North Hollywood and Simi Valley. “It was a complete surprise,” said one company official who asked not to be identified.

Regulators replaced Thayer as Gibraltar Savings’ chief executive with John Carr, a veteran thrift trouble-shooter who had been a senior executive of First Nationwide Bank in San Francisco. Carr, who was not available for comment, quit his old job to take the Gibraltar Savings post.

Carr will be aided by a three-member advisory board consisting of Alan Rothenberg, Tony LaScala and William Martin, all executives with thrift industry experience. The Federal Deposit Insurance Corp. will oversee the operations for the federal government. The FDIC normally regulates commercial banks, but the Bush Administration decided to put it in charge of the thrift takeover operation nationwide.

In recent years, Carr has helped regulators untangle messes at a number of savings and loan firms, including Beverly Hills Savings, which failed several years ago and was eventually sold to a commercial bank in Michigan.

It is now up to the regulators to size up Gibraltar’s problems and decide how best to sell its assets. Gibraltar Financial has said previously that outside investors will not put their money into the company without additional financial assistance from the Federal Savings & Loan Insurance Corp.

The investments by stockholders and bondholders are now highly suspect because Gibraltar Financial has no major operations other than its savings and loan companies. The financial institution has nearly 5,900 shareholders of record and somewhere between 1,500 and 2,000 bondholders, most of whom live in Southern California. The company’s stock is trading at less than $1 a share.

“We are assessing as rapidly as we can (the) effect on our company and its securities holders,” said Thayer, who remains chief executive of the parent company.

Donald Crowley, banking analyst in San Francisco for the investment firm of Keefe, Bruyette & Woods, said it is not clear whether Gibraltar Savings will now make the next interest payment on $100 million in bonds sold in Europe. That payment, made semiannually, is due April 10, he said.

Though severely crippled, Gibraltar Savings has an excellent retail branch network in California consisting of more than 80 outlets about evenly split between the northern and southern parts of the state.

Among the companies said to be interesting in buying some or all of the branches are Columbia Savings in Beverly Hills, Wells Fargo Bank in San Francisco and Home Federal Savings in San Diego. A spokesman for Wells Fargo declined to comment, while Columbia officials could not be reached.

Robert Adelizzi, president of Home Federal Savings, said, “We might be interested under the right circumstances.” He did not elaborate.

Gibraltar Savings had been operating under the strict supervision of the Federal Home Loan Bank of San Francisco. Nevertheless, the thrift continued to operate very aggressively, paying well above market rates for deposits just to obtain the money it needed to fund its operations.

Such tactics, particularly by a weak, money-losing institution, inevitably irked competitors. Said Adelizzi: “They became less concerned about profitability and more concerned with just surviving.”

Even in the best of times, Gibraltar Savings was not very highly regarded by outsiders. “It has been a company that was poorly managed going back to the early 1970s,” said Crowley, the Keefe, Bruyette analyst. “It was always considered a weak-quality company among the stockholder-owned thrifts.”