Magazine article American Banker

Before Its Seizure, Simon Proposed Splitting Western Federal

Magazine article American Banker

Before Its Seizure, Simon Proposed Splitting Western Federal

Article excerpt

WASHINGTON -- Former Treasury Secretary William E. Simon had proposed splitting his critically undercapitalized Western Federal Savings and Loan Association into a good bank specializing in minority loans and a bad bank.

But federal regulators -- who were asked to provide $150 million -- thought it a bad idea.

Late Friday the Officer of Thrift Supervision seized Western Federal, a $4 billion-asset thrift in Marina Del Rey, Calif., and turned it over to the Resolution Trust Corp., which promptly rechartered it as Western Federal Savings Bank.

Investors' Group

The failed thrift's holding company, WestFed Holdings Inc., is owned by a group of private investors led by Mr. Simon.

Other members are Preston Martin, a former vice chairman of the Federal Reserve Board and former Federal Home Loan Bank Board chairman; corporate attorney Gerald Parsky, and California real estate attorneys Larry Thrall and Roy Doumeni.

They claim to have lost the $210 million they had invested in Western Federal since merging it in 1988 with a failed thrift held by the federal government. That sum includes $120 million held by the thrift on Friday.

The OTS had instructed Western Federal to raise its risk-based capital levels to 9% from the 4.7% it reported at the end of the first quarter. The regulators also demanded that Western Federal raise its core capital to 5% from 2.2%.

Mr. Martin said the investors would have had to raise $150 million to comply.

Instead, Western Federal proposed breaking off about $1 billion of its assets into a "good bank," which Mr. …

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