Benj. Franklin Savings and Loan

Last updated
Benj. Franklin Savings and Loan
TypePublic
Industry Banking
Founded1925
Defunct1990
FateSeized during the savings and loan crisis
Headquarters Portland, Oregon, USA

Benj. Franklin Savings and Loan was a thrift based in Portland, in the U.S. state of Oregon. Founded in 1925, the company was seized by the United States Government in 1990. In 1996 the United States Supreme Court found that this and similar seizures were based on an unconstitutional provision of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). Shareholders of the thrift sued the federal government for damages caused by the seizure, with the shareholders winning several rounds in the courts. [1] In 2013, $9.5 million was allocated for disbursement to shareholders.

Contents

History

Benj. Franklin S&L's television commercials featured its President, Bob Hazen, in which he hawked toasters and other free gifts to woo new depositors and to pitch other financial products and services. Hazen is credited with inventing the thrift marketing phrase: "Pay Yourself First."

Hazen's father founded the Benj. Franklin in 1925. Although the name on signs and letterhead was "Benj." in promotions and discussions, the full word "Benjamin" was always pronounced.

Between 1982 and 1989 the thrift made a profit in 16 consecutive calendar quarters and became the number one mortgage lender in the Portland metropolitan area. It had strong lending positions in other major areas of the Northwest.[ citation needed ]

Headquarters

Their named headquarters building was 1 SW Columbia, in Portland, Oregon. A 30-story 1980s brick-veneer office building, fronting on the Willamette River near the Hawthorne and Marquam Bridges, the building still stands as the Umpqua Bank Plaza, headquarters of Umpqua Holdings Corporation.

Hazen was a fan of cast-iron architecture, a technique popular in the 19th century to early 20th century. He had collected castings from a great many, as the old buildings were torn down over the years by developers. Several of these iron fronts were incorporated into the executive level and board room of the building.

Seeds of the seizure

In 1982 the entire industry was on the verge of bankruptcy, as was the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation (FSLIC), the government agencies that insured banks and thrifts to protect the depositors. Interest rates on savings deposits were over 15% at a time when the industry was invested in long-term mortgages charging about 8%.

When regulators seize a bank or a thrift, they find a healthy bank or thrift to "acquire" the assets, liabilities and customers of the failing enterprise. There are various incentives, including an accounting strategy that values the negative net worth of the failing thrift as a capital asset of "Goodwill" to the acquiring thrift. These were called "Supervisory Goodwill Agreements". The acquiring thrift was allowed to show this "Goodwill" as an asset for regulatory compliance purposes, depreciating (writing it down) over a long period of years. "Supervisory Goodwill" was also called "Blue Sky."

Absent "Blue Sky" most acquiring thrifts would be instantly out of compliance with regulatory capitalization requirements, so it was a necessary component of most forced mergers.

In 1982, Benj. Franklin was asked by the FSLIC to acquire a failing thrift, Equitable Savings and Loan. The agreement with the government included a 40-year amortization of over $340 million in "Supervisory Goodwill" ($644 million in 2008 dollars). Benj. Franklin and the government made a similar agreement in 1985 concerning the acquisition of Western Heritage Savings and Loan. These agreements had the full approval of the Federal Home Loan Bank Board.

Scandals and FIRREA

In the middle of the S&L crisis of the late 1980s; the officers of several thrifts were accused and later convicted of defrauding investors and depositors. In 1989 Congress passed FIRREA. Critics suggest that FIRREA was a hasty reaction to the frauds and scandals that actually exacerbated the S&L problem, from crisis to a true disaster. Among its controversial provisions, FIRREA retroactively revoked agreements for the long-term amortization of goodwill.

The US Constitution prohibits "Ex Post Facto" laws (making something illegal after it has happened). In 1996, the US Supreme Court found that this clause applied to the retroactive aspects of FIRREA.

Seizure

In late 1989 regulators notified Benj. Franklin that the $330 million in "Supervisory Goodwill Agreement" phantom capital from the Equitable S&L merger must be removed from the balance sheets under the new FIRREA rules. Benj. Franklin was informed that unless it came up with a replacement for that $330 million in capital within about 90 days, it would be declared insolvent and seized.

The managers of Benj. Franklin pointed to the contract all had signed, and took the position that the new requirement to raise additional capital was a violation of that contract. They took the posture that they were in compliance and had a contract which defined compliance and did not need to come up with $330 million, roughly double the amount then held as capital.

Regulators declared Benj. Franklin insolvent and seized its assets on February 21, 1990 under protest. In September 1990, Bank of America acquired the thrift from the government. [2] In August 2013, it was announced shareholders would receive $9.5 million, or $1.23 per share, in a disbursement of the company's assets. [3]

Lawsuit

Former branch in downtown Hillsboro, Oregon, now a branch of Bank of America. This neo-colonial architecture was intended to communicate stability. Bank of America in downtown Hillsboro Oregon.JPG
Former branch in downtown Hillsboro, Oregon, now a branch of Bank of America. This neo-colonial architecture was intended to communicate stability.

Trial on the issue of how much damages should be awarded started in January 1999, and finished in September 1999. Government experts testified that the damages to Benj. due to the seizure was zero. Experts testified that the value of Benj. Franklin at the time of the 1999 trial if it had not been seized would have been $944,000,000.

See also

Related Research Articles

Washington Mutual was the United States' largest savings and loan association until its collapse in 2008.

<span class="mw-page-title-main">Donald Riegle</span> American politician

Donald Wayne Riegle Jr. is an American politician, author, and businessman from Michigan. He served for five terms as a Representative and for three terms as a Senator in the U.S. Congress.

The Philadelphia Savings Fund Society (PSFS), originally called the Philadelphia Saving Fund Society, was a savings bank headquartered in Philadelphia, Pennsylvania, United States. PSFS was founded in December 1816, the first savings bank to organize and do business in the United States. The bank would develop as one of the largest savings banks in the United States and became a Philadelphia institution. Generations of Philadelphians first opened accounts as children and became lifelong depositors.

A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. The terms "S&L" or "thrift" are mainly used in the United States; similar institutions in the United Kingdom, Ireland and some Commonwealth countries include building societies and trustee savings banks. They are often mutually held, meaning that the depositors and borrowers are members with voting rights, and have the ability to direct the financial and managerial goals of the organization like the members of a credit union or the policyholders of a mutual insurance company. While it is possible for an S&L to be a joint-stock company, and even publicly traded, in such instances it is no longer truly a mutual association, and depositors and borrowers no longer have membership rights and managerial control. By law, thrifts can have no more than 20 percent of their lending in commercial loans—their focus on mortgage and consumer loans makes them particularly vulnerable to housing downturns such as the deep one the U.S. experienced in 2007.

<span class="mw-page-title-main">Savings and loan crisis</span> US financial crisis from 1986 to 1995

The savings and loan crisis of the 1980s and 1990s was the failure of 1,043 out of the 3,234 savings and loan associations (S&Ls) in the United States from 1986 to 1995. An S&L or "thrift" is a financial institution that accepts savings deposits and makes mortgage, car and other personal loans to individual members.

<span class="mw-page-title-main">Federal Home Loan Bank Board</span>

The Federal Home Loan Bank Board (FHLBB) was a board created in 1932 that governed the Federal Home Loan Banks also created by the act, the Federal Savings and Loan Insurance Corporation (FSLIC) and nationally-chartered thrifts. It was abolished and superseded by the Federal Housing Finance Board and the Office of Thrift Supervision in 1989 due to the savings and loan crisis of the 1980s, as Federal Home Loan Banks gave favorable lending to the thrifts it regulated leading to regulatory capture.

TD Banknorth, formerly Banknorth, was a wholly owned subsidiary of the Toronto-Dominion Bank which conducted banking and insurance activities, primarily serving the northeastern area of the United States, headquartered in Portland, Maine. The bank became TD Bank, N.A. on May 31, 2008.

Great Western Bank was a large retail bank that operated primarily in the Western United States. Great Western's headquarters were in Chatsworth, California. At one time, Great Western was one of the largest savings and loan in the United States, second only to Home Savings of America. The bank was acquired by Washington Mutual in 1997 for $6.8 billion.

H.F. Ahmanson & Co. was a California holding company named after millionaire Howard F. Ahmanson Sr. It was best known as the parent of Home Savings of America, once one of the largest savings and loan associations in the United States.

<span class="mw-page-title-main">Financial Institutions Reform, Recovery, and Enforcement Act of 1989</span>

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), is a United States federal law enacted in the wake of the savings and loan crisis of the 1980s.

The Federal Savings and Loan Insurance Corporation (FSLIC) was an institution that administered deposit insurance for savings and loan institutions in the United States.

The Federal Deposit Insurance Reform Act of 2005, was an act of the United States Congress on banking regulation. It contained a number of changes to the Federal Deposit Insurance Corporation (FDIC).

Umpqua Holdings Corporation, d.b.a. Umpqua Bank, is a financial holding company based in downtown Portland, Oregon, United States. Headquarters are in the Umpqua Bank Plaza, formerly the headquarters of Benj. Franklin Savings and Loan. The firm has two principal operating subsidiaries: Umpqua Bank and Umpqua Investments.

<span class="mw-page-title-main">Old Stone Bank</span>

Old Stone Bank was a popular Rhode Island banking institution that was founded in Providence in 1819 as a mutual savings bank that was called Providence Institution for Savings.

<span class="mw-page-title-main">Umpqua Bank Plaza</span> Skyscraper in Portland Oregon

Umpqua Bank Plaza is a 19-story office building in Downtown Portland, Oregon, United States. Faced with red brick, the structure is 263 feet (80 m) tall and has 265,000 square feet (24,600 m2) of space. Opened in 1975 at a cost of $16 million, the building was designed by Wolff, Zimmer, Gunsul, Frasca. Originally named the Benjamin Franklin Plaza after tenant Benj. Franklin Savings and Loan, the building was later renamed after current tenant Umpqua Holdings Corporation.

Bank United Corporation, headquartered in Houston, Texas, was a broad-based financial services provider and the largest publicly traded depository institution headquartered in Texas before its merger with Washington Mutual in 2001. Bank United Corp. conducted its business through its wholly owned subsidiary, Bank United, a federally chartered savings bank. The company operated a 155-branch community banking network in Texas, including 77 in the Dallas/Fort Worth Metroplex, 66 in the greater Houston area, five in Midland, four in Austin, and three in San Antonio; operated 19 SBA lending offices in 14 states; was a national middle market commercial bank with 23 regional offices in 16 states; originated mortgage loans through 11 wholesale offices in 10 states; operated a national mortgage servicing business serving approximately 324,000 customers, and managed an investment portfolio. As of June 30, 2000, Bank United Corp. had assets of $18.2 billion, deposits of $8.8 billion, and stockholder's equity of $823 million.

The Financing Corporation (FICO) was a federally established mixed-ownership corporation that assumed all the assets and liabilities of the insolvent Federal Savings and Loan Insurance Corporation (FSLIC) and operated as a financing vehicle for the FSLIC Resolution Fund after the former was abolished by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).

CenTrust Bank, A State Savings Bank was a Miami, Florida-based savings and loan. Its failure in 1990 was one of the largest and costliest failures of the savings and loan crisis.

Franklin Savings Association was an Ottawa, Kansas-based American Savings and loan association that was one of the largest seizures of the savings and loan crisis. Subsequent litigation established that the institution had always been in full capital compliance, a fact to which the FDIC stipulated in 2011, after 21 years of legal challenges by Franklin's shareholders. Also, the FDIC refused to open its books to a bankruptcy judge and never demonstrated that the seizure resulted in a loss to the American taxpayers. It is widely believed that Franklin's assets, which had a book value of more than $380 million when seized, were ultimately sold by the government to private investors at a significant profit.

Gibraltar Savings Association was a Houston, Texas based savings and loan. Its failure in 1988 and resolution was one of the most expensive in the savings and loan crisis at an estimated cost of $2.875 billion.

References

  1. ↑ "Shareholders Litigation Fund Website". Archived from the original on 2011-09-10. Retrieved 2011-09-19.
  2. ↑ BATES, JAMES. "BankAmerica Pays $162.3 Million for Failed Thrift, Oregon's Largest." Los Angeles Times, September 8, 1990. http://articles.latimes.com/1990-09-08/business/fi-490_1_largest-thrift.
  3. ↑ Smith, Rob (August 8, 2013). "After 23 years, Benj. Franklin S&L shareholders finally get their cash". Portland Business Journal . Retrieved 9 August 2013.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.