Fidelity Savings and Loan Association of San Francisco, which was seized by the government last April, went to court yesterday seeking to remove the Federal Savings and Loan Insurance Corp. as its receiver in the latest challenge to the agency's policy of forced mergers for troubled savings and loan institutions.
A decision is expected this week from U.S. District Court Judge Spencer Williams to determine whether the stockholders of Fidelity will be entitled to any of its remaining assets or whether they will be wiped out.
A ruling against the FSLIC could strengthen the opposition--within the savings industry and Congress--to the FSLIC's strategy of combining failing S&Ls with stronger partners, which has been rapidly shrinking the industry.
The FSLIC took over the $3 billion Fidelity S&L because it feared its imminent collapse. Its net worth had fallen from $91.6 million in January 1981 to $19.6 million in March 1982. It was losing money at the rate of $5 million a month and would have become insolvent by July. The Federal Home Loan Bank of San Francisco, which had lent it $1.4 billion, refused to make any more advances unless the FSLIC guaranteed them.
According to court depositions, California Savings and Loan Commissioner Linda Tsao Yang proposed several alternative plans to save Fidelity as a stock association, but in the end was left with no choice but to seize Fidelity and turn it over to the FSLIC. In a telephone conversation on April 9, four days before the takeover, FSLIC director H. Brent Beesley told Yang, "Linda, let's stop playing games. It's over; we have to get on with it." Another FSLIC official said the agency would "have to wipe out the stockholders" or there would be no FSLIC financial assistance.
In another deposition, according to the Los Angeles Times, Beesley said Fidelity was "in a nose dive for disaster and has been for a long time. Only the exact moment at which it was going to hit the ground and explode was not known." The FSLIC refused to release his testimony yesterday.
Fidelity is also suing the Federal Home Loan Bank for $114 million, alleging that it charged the S&L too high an interest rate on its loans and that it conspired with federal regulators to drive it into insolvency. The majority of Fidelty's stock was owned by its president and a San Francisco lawyer, who stand to lose everything if their efforts are rebuffed, because the FSLIC transforned Fidelity into a mutual S&L after seizing it.
The FSLIC contends that Fidelity's officials dissipated $1 million of the remaining assets in the final days by giving severance pay to top executives and paying law fees in advance to two law firms, including one in which a major Fidelity stockholder is a partner.
Meanwhile the FSLIC has solicited bids from banks, savings and loans and companies interested in taking over Fidelity. Among the bidders are Citicorp of New York, and several California savings and loans, among them, Far West, Eureka Federal, Home Federal, and Fidelity Federal of Glendale.