Finance · Profile from Finance Research Companion
Lincoln Savings and Loan Association
A conservative Southern California thrift, founded in 1925, that Charles H. Keating Jr.'s Phoenix homebuilder American Continental Corporation bought in 1984 for ~$51m and turned, within four years, into a ~$5.5bn vehicle for real-estate development, junk bonds and accounting-driven profits funded by federally insured deposits. When regulators in San Francisco moved to close in on it, five US senators who had received ~$1.3m in contributions linked to Keating met them on his behalf in April 1987. Supervision was moved to Washington, the examination was restarted and Lincoln survived two more years, during which American Continental sold ~$250–288m of uninsured junk bonds to ~21,000–23,000 mostly elderly customers in Lincoln's branches. American Continental filed for bankruptcy on April 13, 1989, and Lincoln was seized the next day. Its failure cost the government ~$3.4bn (most-cited figure), one of the largest single losses of the savings and loan crisis. The "Keating Five" became the defining scandal of money in politics in bank regulation, and Keating's convictions, later overturned, and his 1999 guilty plea closed the story. Its legacy is FIRREA, the Resolution Trust Corporation, prompt corrective action and the rule that bank customers must be told clearly what is not insured.
At a glance
- Founded
- 1925, Los Angeles, as a California-chartered savings and loan association; headquarters later moved to Irvine under ACC (Wikipedia, citing the Los Angeles Times, 1985)
- Builders
- Charles H. Keating Jr. (chairman of American Continental Corporation, owner from 1984); his family members and executives, including his son Charles Keating III and son-in-law Robert Wurzelbacher (verify roles)
- Headquarters
- Irvine, California (Lincoln); Phoenix, Arizona (American Continental)
- Ownership / structure
- Subsidiary of American Continental Corporation (ACC), a publicly traded Phoenix homebuilder and real-estate developer; state-chartered stock thrift insured by the Federal Savings and Loan Insurance Corporation (FSLIC)
- Regulators
- Federal Home Loan Bank Board (FHLBB, chairmen Edwin J. Gray 1983–87 and M. Danny Wall 1987–89); Federal Home Loan Bank of San Francisco (examination and supervision until 1988); California Department of Savings and Loan; after 1989 the Office of Thrift Supervision and the Resolution Trust Corporation
- Scale
- Assets ~$1.1bn at purchase (1984) → ~$5.5bn (1988); at seizure ~$5.4bn of assets, ~$4.4bn of deposits, 29 branches in Southern California (Great Western later bought 28 offices from the RTC), ~$20m of capital against ~$325m required (Wikipedia, citing contemporary reports)
- Customers harmed
- ~21,000–23,000 buyers of ACC subordinated debentures sold in Lincoln branches, losses ~$250–288m (sources vary); taxpayers via the FSLIC/RTC
- Cost of failure
- ~$3.4bn (most widely cited, secondary sources); ~$3.14bn (attributed to the FDIC, National Mortgage News, 2014); ~$2.6bn (OTS estimate in a 1993 enforcement order); Wikipedia says "almost $3 billion"
- End
- ACC Chapter 11 April 13, 1989; FHLBB conservatorship April 14, 1989; receivership and RTC liquidation from August 1989 (verify date); branches and ~$1bn of deposits sold to Great Western in March 1991 for $12.1m (reported)
- Signature moves (incl. failures)
- ACC's acquisition (1984); the direct-investment rule fight (1985); Hidden Valley and sham profits (1987); the Keating Five meetings (1987); the Washington MOU and exam transfer (1988); debenture sales in the branches (1988); seizure, FIRREA and the RTC (1989); Keating's prosecutions and reversals (1991–99)
8 strategic moves analysed
Each one gets a full strategy file in the companion: context, the decision, the financing, what happened, and the lesson.
1984
American Continental Acquisition
Acquisition
1985
Direct Investment Rule Fight
Regulatory battle / lobbying
1987
Hidden Valley and Sham Profits
Accounting fraud (as later found by regulators and a federal court) / related-party transactions
1987
Keating Five Meetings
Political intervention / scandal
1988
Branch Debenture Sales
Funding / consumer fraud (as found in state and civil courts)
1988
Washington MOU and Exam Transfer
Regulatory settlement / forbearance
1989
Seizure FIRREA and RTC
Failure / bankruptcy / government resolution
1991
Keating Prosecutions and Reversals
Criminal prosecution / legal aftermath