Union Tribune

November 1, 2002 

Case of Simon S&L collapse becomes part of governor's race
Trial is going on in D.C. courtroom

By JOE CANTLUPE 
COPLEY NEWS SERVICE 

WASHINGTON Sometimes, the witnesses couldn't recall the
details of circumstances that led to the collapse of Bill Simon's
bank nearly a decade ago.

And while lawyers argued about the arcane complexities of
capital resources and breach of contracts the past few weeks, the
spectators in the courtroom near the White House often found
their attention diverted from tedious testimony to their Palm
Pilots.

What would ordinarily be an obscure case about another thrift
failure stemming from the savings and loan debacle of the 1980s
has been thrust into the California gubernatorial campaign.

Gov. Gray Davis has portrayed the demise of the Western
Federal Savings and Loan in Los Angeles as one of Simon's
biggest business failures.

But Simon has sought to distance himself from involvement in
the day-to-day operation of the bank founded by his father, the
late Treasury Secretary William E. Simon Sr.

Inside the U.S. Court of Federal Claims, Bill Simon hasn't totally
separated himself from the fallout of the bank collapse. He and
his family are trying to recoup $40 million from the government
for the 1993 collapse, saying the government reneged on
promises that undermined the thrift's operation.

Altogether, the institution an d its investors are asking for $750
million from the government.

"We had a contract with the government, and they said, 'Well,
forget about it, thank you,' and we said goodbye to $40 million,"
said Simon's brother, Peter.

Like the Simon family, many high-level financiers once courted
by Washington during the savings and loan crises of the 1980s
are now locked in litigious combat with the government to settle
losses estimated at $30 billion.

At least 10 percent of the Court of Federal Claims cases are
related to the savings and loan failures.

"You can close your eyes in any of these cases and pick a brief
out of the file and find all those arguments," said attorney
Charles Cooper, who has filed several thrift-failure-related cases
against the government but is not involved in the Simon
litigation.

The U.S. Supreme Court opened the legal floodgates in 1996
when it ruled that a sweeping reform bill enacted by Congress in
1989 effectively broke a deal that investors like the Simons had
with regulators when they bought ailing thrifts.

Judge Emily Hewitt, who is presiding over the Simon case, has
ruled that the government breached its contract with the
Western Federal Savings and Loan investors, echoing the
Supreme Court decision.

As the Simon family and other investors seek damages, however,
the Justice Department maintains that the thrift was poorly
managed and failed to foresee the slumping California economy
in the late 1980s and early 1990s. 

Already, taxpayers paid about $92 million to stabilize the
institution after it was taken over by regulators in 1993, Justice
Department officials said. The savings and loan is no longer in
operation.

The Davis campaign has seized on the Justice Department
allegations.

"Now Simon is back in court again," the Davis ads state. "Suing.
Trying to blame the federal government for his own mistakes,
asking the same taxpayers that bailed out his mess to cover his
millions in losses."

The acrimony that exists in court is a far cry from the
relationship between government regulators and William E.
Simon Sr. and his partners in the late 1980s.

Simon Sr. bought Western Federal in 1988 with co-investors
Preston Martin, a former Federal Reserve vice chairman, and
Gerald Parsky of Rancho Santa Fe, a prominent California
Republican who later sold his shares of the partnership.

Simon envisioned acquiring thrifts as part of a plan to capitalize
on the growing Pacific Rim economy.

After buying the then-thriving Western Federal, the investors
said they agreed to purchase the fiscally ailing Bell Savings and
Loan of San Mateo after the government promised fiscal
incentives. 

The institutions were merged under the WestFed holding
company.

Within a year, however, Congress changed government policy
and increased the amount of cash that institutions were
supposed to hold in reserve.

Shortly thereafter, Western Federal Savings and Loan went into
a tailspin.

Its $150 million request for a government bailout was rejected.
In 1993, Western Federal was seized by federal regulators and
placed into receivership.

Bill Simon has said that one of his tasks at William E. Simon and
Sons, which he joined in 1988, was to monitor his father's
holdings in Western Federal Savings and Loan.

Simon said he was a member of the bank's board of directors but
was not involved in day-to-day operations. He said he managed
the family business.

Martin, former chairman of the board of the bank, said Simon
was an astute board member but exerted no unusual influence.

Banking experts and some people involved with the case doubt
that the Simon family will recoup the millions of dollars it is
seeking. Many expect a settlement before the trial is scheduled
to conclude by the end of the year.

"I don't think we'll get what we're asking for," Peter Simon said.