No Respite

By Stephen Koepp.

As the waves of anxiety from Ohio's savings-and-loan panic started to calm down last week, members of the banking community desperately hoped for a respite from further turmoil. But they did not get it. Another bout of uneasiness hit the financial industry, this time inspired partly by the plight of Texas banks laden with bad loans in energy and real estate. Meanwhile, everyone from divorce lawyers to the FBI was busily looking for culprits in the failure of Home State Savings, the Cincinnati thrift whose sudden collapse last month touched off a minor financial panic. The scare forced Governor Richard Celeste to close Ohio's 69 privately insured thrifts in the largest U.S. bank holiday since the Depression.

By last week more than two dozen Ohio thrifts had reopened, backed now by the Federal Savings and Loan Insurance Corporation, a federal agency that guarantees deposits up to $100,000. The remaining privately insured S and Ls were allowing customers to withdraw up to $750. Depositors said they had confidence in their thrifts, and there was little sense of panic. Nonetheless, at least 200 jittery customers lined up to make withdrawals last Thursday from Cincinnati's Oakmont Savings and Loan, where there had been reports that some of the thrift's officers had illegally taken money from their accounts on advance word about Home State's troubles. State officials on Friday denied that had taken place.

Across town, customers of Home State kept up a wail of protest because their savings will remain frozen until authorities find a healthier partner to take over the shuttered bank. About 3,000 depositors gathered last week at Xavier University's field house for an emotional rally to urge the state to speed up action. New York's Citicorp has emerged as the prime merger candidate. A host of state and federal investigators are looking into Home State's ties with E.S.M. Government Securities, a Fort Lauderdale dealer in Treasury bills and bonds whose March 4 closing forced Home State out of business. A central figure in these probes is Financier Marvin Warner, the owner of Home State and formerly a heavy investor in E.S.M. Last week a group of Home State depositors filed a $432 million lawsuit claiming that the bank invested in E.S.M. "not because it was prudent or even safe to do so, but rather because of the illicit financial benefits conferred upon Warner." The suit maintains that Home State will lose at least $144 million from its dealings with E.S.M.

More accusations about Home State's financial dealings may emerge next week during a Cincinnati hearing involving the divorce of the thrift's former president, Burton Bongard. His ex-wife Susan, represented by Los Angeles Attorney Marvin Mitchelson, claims that Bongard cheated her in their division of property, which included the sale last year of his 15% share of Home State. Bongard contends he sold the stock to Warner for $277,000 because that was all he could get for it. But his former wife charges that the bank president received a secret bonus of $3 million taken from the coffers of E.S.M. Warner, for his part, claims that he is a victim rather than perpetrator of the E.S.M. scam.

In the South, investors grew jittery once again about the health of Texas banks, which have been rocked for three years by disastrous loans in energy and, more recently, in real estate. Texas banks have come under heavy pressure from federal regulators to own up to their losses by adopting more forthright accounting methods. One elite bank that seemed impervious to the energy bust, Texas Commerce Bancshares (assets: $20.7 billion), startled the financial community earlier this month with a disclosure that its first-quarter profits would decline 35%, to $30 million, its first quarterly drop in 16 years.

A disturbing aspect of the slump was that it was caused in part by problem loans to two of the bank's directors. Federal regulators have launched a probe to see whether the loans, which carried below-market interest rates, were illegal. The episode marks a fall from grace for an industry hero, Texas Commerce Chairman Ben F. Love, who had a longstanding reputation for cautious lending. Investors regard Love's stumble as a bad sign for Texas banks in general. Says Robert Walters, an analyst at Austin's Sheshunoff investment firm: "The problem loans are startling. It is more than a minor disappointment."

With reporting by Ginny Hunter/Cincinnati and Geoffrey Leavenworth/Houston