SAN DIEGO, Calif. -- Federal regulators seized control Friday of insolvent Great American Bank, once the nation's eighth-largest thrift, declaring it was operating in an unsafe and unsound condition.
'The seizure is pretty much on schedule and something of a foregone conclusion,' said banking analyst Campbell Chaney of Sutro & Co. in San Francisco.
The 81-branch thrift, which has been selling assets in an unsuccessful effort to meet capital requirements, had beenwidely expected to fail due to huge losses in its real estate portfolio and its recent disclosure that it had become insolvent.
The insolvency meant that it could be seized at any time. It had recently completed a two-step, $491 million sale of its prized 130- branch California network to San Francisco-based Wells Fargo & Co., but regulators said Friday the proceeds were not enough to prevent the seizure.
'Once the Wells Fargo deal went through, it was just a matter of time before it was seized,' Chaney said.
Office of Thrift Supervision spokeswoman Laurie Lavaroni said there is no estimate yet on the cost to bail out Great American, which reported last week that it was insolvent with negative tangible capital of $83 million.
'Great American was operating in an unsafe and unsound condition in that it had insufficient capital, with no prospect of replenishment without federal assistance,' the OTS said.
The 106-year-old Great American lost $173 million last year and $46.8 million in the first quarter. It reported last week that it expected to post a second-quarter loss of $70 million due to setting aside $66 million to cover bad real estate loans.
As of March 31, nearly a quarter of its $10 billion of assets were classified as substandard, doubtful or losses.
The OTS said the takeover did not result in any interruption of Great American's day-to-day operations at 81 branches in Arizona, where it is the largest thrift, Washington state and Colorado.
The seizure was the latest in a long line of government takeovers of major S&Ls in California, including Lincoln Savings, Gibraltar Savings, Santa Barbara Savings, Columbia Savings, FarWest Savings, Mercury Savings and Imperial Savings of America.
During most of the 1980s, California was once home to the nation's healthiest thrifts due to its booming real estate market. But over the past two years, a downturn in real estate, the recession and exposure to high-risk 'junk' bonds doomed many of the state's thrifts.
In Great American's case, banking analysts have pointed to its 1986 purchase of Home Federal Savings, of Tucson, Ariz., as the root of its problems. 'That purchase was the beginning of the end,' Chaney said. 'It came at the height of the speculative boom in Arizona, and it was all downhill after that.'
At the time, Chairman Gordon Luce, a longtime friend of President Reagan, said the acquisition would enable Great American to take advantage of a booming state where population, personal income and growth were outperforming the rest of the nation.
Instead, Great American bought into an overbuilt real estate market, which produced highly damaging losses to a number of California thrifts and banks, including First Interstate Bancorp and Security Pacific. 'The Arizona market just chewed up most of Great American's capital,' Chaney said.
Luce, the 65-year-old scion of a San Deigo pioneer family, retired a little more than a year ago from his posts as chairman, chief executive officer and president of Great American. He was replaced by Roger K. Lindland as president and Robert L. Kemper as chairman and chief executive.
Luce, whose close relationship with Reagan made him one of the most powerful men in the S&L business, had been chief executive of the thrift for 20 years, during a period of rapid growth in the San Diego area.
In April 1990, Great American gave a strong indication that it would not survive when it announced that it would have to raise $350 million in new capital by the end of the year to meet capital requirements as part of a survival plan approved by federal regulators.
At a May shareholders meeting, Kemper downplayed the sale of the California branches and noted that deposits in Arizona, Colorado and Washington were on the rise. He said $486 million in new deposits were recorded in those three states during the first three months of 1991, pushing total despoits to above $1 billion.
It reported last week that it had filed a revised capital plan for regulatory review on July 25 and said the plan contained strategies that would allow it to achieve compliance by Dec. 31, 1995.