Regulators spent a record $1.7 billion Friday to bail out CenTrust Bank of Miami, capping an unprecedented three-month spree of 155 savings and loan rescues or closings that cost an estimated $29 billion.
In the biggest bailout of a savings and loan yet, the government is paying Great Western Financial Corp. of Beverly Hills, Calif., to take over CenTrust's 71 branches and $5.2 billion in deposits, officials said.In all, the Resolution Trust Corp., created 11 months ago to clean up the thrift industry, expected to sell or close 15 institutions Friday, including some of the largest failures handled to date.
When regulators seized CenTrust in February, they blamed its failure on speculative investing, including purchase of more than $1 billion in junk bonds from the investment banking firm of Drexel Burnham Lambert Inc., which later crashed itself.
They also cited the lavish spending of the institution's chairman, David L. Paul, who spent millions of dollars of deposits on a museum-quality art collection kept at his home; a company yacht; limousines and gold-plated toilets in the executive washrooms.
A "fraud squad" of investigators is examining the legality of $328,000 in political contributions by Paul.
CenTrust's failure is rivaled only by the collapse of Charles H. Keating Jr.'s Lincoln Savings and Loan Association of Irvine, Calif. The Lincoln case is expected to cost taxpayers around $2 billion when regulators eventually resolve the case.
Great Western is paying $86 million to acquire the right to service CenTrust's deposits. Most were so-called brokered deposits which were placed by money brokers and were drawing a high interest rate. They are expected to flow out of the institution, leaving a base of $1.78 billion in deposits from local branch customers.
Great Western is also buying about half of CenTrust's $6.7 billion in assets, with the right to return them within three months if they turn out to be worse than expected. The assets include cash and investment-grade securities, residential mortgages and consumer loans.
The Resolution Trust Corp. will keep the rest, including the junk bonds, and try to sell them to other buyers.
In another major deal, the Resolution Trust Corp. was expected to announce that Security Pacific National Bank was acquiring Gibraltar Savings, Simi Valley, Calif. Security Pacific said earlier this week it submitted a successful bid for Gibraltar, but the corporation had not announced the deal by early Friday evening.
It would bring total resolutions to 155 for the April-June quarter and 207 since the agency began operating last August. The cost to the taxpayers for the 155 deals is estimated at $29 billion.