1. Archive

S&L failure takes luster off William Simon's Midas touch

As high-powered investor William E. Simon and his partners began acquiring Western thrifts and banks in the late 1980s, Simon spoke about building "a mosaic of financial institutions" that would exploit the growth of trade in the Far East and financial services in the Sun Belt.

Controversial and combative, the former U.S. Treasury secretary even compared his growing empire to the Hong Kong merchant banking houses portrayed in James Clavell's novel Noble House.

After all, he was once a legendary bond trader on Wall Street who become a top economic policy-maker in Washington and later made tens of millions of dollars through leveraged buyouts in the 1980s.

Simon never did become a financial powerhouse in the West, however, and what's left of his mosaic today is crumbling.

Federal regulators now run what was his biggest remaining Sun Belt holding, Western Federal Savings, after seizing the Marina del Rey, Calif.-based thrift June 4. The 27-branch S&L, with $4-billion in assets, suffered major losses and had far too little capital to keep going, the Office of Thrift Supervision said.

Three smaller Simon-controlled institutions _ Southern California Savings, Westcoast Savings and World Trade Bank _ are also either struggling or have required major cash infusions.

Owning sick S&Ls is not unique to Simon, and he sold two of his financial holdings _ Honolulu Federal Savings and First Interstate Bank of Hawaii _ for profits estimated at more than $40-million.

But his family also lost $40-million it had invested in Western Federal, and Simon and his partners had to pump $48-million into Southern California Savings last year to keep it afloat. Simon is certainly by all accounts still a very wealthy man, with Forbes magazine last fall estimating his net worth at $275-million.

To some, this blemishes the reputation Simon earned in the 1980s as the investor with a Midas touch.

But others defend him and point out that even the most astute investors sometimes bomb.

"I don't know any investor that's been 100 percent successful," countered Campbell Chaney, a thrift analyst with Hancock Institutional Equity Services. "Clearly William Simon's successes outnumber his failures."

In any case, it was not supposed to be this way for the legendary Simon, who was said to be traveling and not available for comment.

Simon first made his mark as a hugely successful bond trader at Salomon Bros. in the 1960s. He later became familiar to the American public as the nation's first energy "czar" under President Nixon, and Treasury secretary under President Ford.

As the 1980s dawned, Simon teamed with a New Jersey accountant named Raymond Chambers, and helped pioneer the use of leveraged buyouts, in which undervalued, cash-rich companies were bought with mostly borrowed money.

Their partnership, known as Wesray, bought such companies as greeting-card maker Gibson Greetings, Wilson Sporting Goods and pattern maker Simplicity Manufacturing. In many cases, Simon and his investors resold the properties for vast profits, making Simon one of the richest men in America.

Wesray's success helped make leveraged buyouts a staple during the merger-wild 1980s. And Simon added another notch to a renowned career that also included his stints as author, lecturer and political activist.