I've received your September 11 letter recounting our phone 1. You mentioned that you were virtually finished putting 2. We discussed the scheduling of a meeting among you, no, and Sincerely, Mike Michael Patriarca Director, Agency Group MP/ca what we stated in our conversations. I FHLBB-LIN-8932 bcc: W. K. Black, C. A. Deardorff, G. Robinson, R. A. Sanchez Record Copy: M. Patriarca, Agency Group 600 California Street Post Office Box 7848 San Francisco, California 94130-7948 Telephone 418-983-1000 FROM CHISAME To: DOCHOWDAIWASHOC TOT CHESUSLR--FILESY 09/30/87 09:47:36m FROM: MICHAEL PATRIARCA, DIRECTOR Subject: Lincola As we proceed to try identify what we're u there is an incredibi each conclusions on the basis of what we know and to reach conclusions on, it has become plain that Bunt of information in the files and in people's heads that should be taken into consideration. I think you should give serious consideration to coming out here (or sending Kevin) to review the files that practicality prevents shipping to Washington. Moreover, I think it's critical to talk to the outside folks who have been helping us for an extended time on this exam. These include the attorneys from Pillsbury, the accountants from Leventhol and, perhaps, certain of the appraisers who have looked at the more complex properties involved. Quite frankly, I don't think anyone could perform an independent review and hope to reach an informed and well reasoned decision without undertaking those kind of inquiries. Separately, I'm told that Lincoln delivered to you yesterday another 70 paga submission. Al is expressing a copy to us. But the timing of the submission raises serious questions about the conclusion schedule you outlined to me. Additionally, it seems a bit odd that we were instructed not to send examiners into the institution to get needed information so that the exam could be closed out and, at the same time, the institutioncontinues to prolong the reveiw period by making 11th hour submissions. From my perception, I distressed that the extensive time we've afforded the institution to develop replies to our findings is seen as their due and the time it has taken us to review and analyze those responses is characterized as harrassment by dragging FILE: FILE181 OUTPUT C1 F.H.L.B. OF 8.7 VH/SP4 CHS out the exam process. There is a long history of actions on the part of the institution that has directly affected the amount of time the exam has taken. It's simply unfair to have those actions and our attempts to give them every opportunity to tell their side of the story characterised as deliberate delaying on our part. It is not only unfair, it's untrue. While I welcome any amount of scrutiny of our actions during this exam (or on this case generally), that's not the point of this note. The point is: to do the independent review you've undertaken, you have to undertake the inquiries I outlined in the first paragraph. We will make arrangements for you to meet with the outside experts if you will only give us a date. Our staff can be available any time Charles A. Deardor OTS-D11-0547172 FHLBB-LIN-106728 SPECIAL COUNSEL We have yet another delay in coming to a decision about Lincoln, though I sense a consensus starting to build in favor of a stronger action than simply a Memorandum of Understanding. The meeting began with Jordan Luke explaining why Lincoln did not appear today to give their side of the story. Lincoln strenuously objected to anyone from S. F. being there. In particular, Margery Waxman reported that the officers in Phoenix stated that there had been a "run-in" with Richard Sanchez and Charles Keating, and they were not going to appear if Richard was here. George Barclay then took a very hard line, saying that "somewhere down the line we are going to have to stand up to these people, and I think this may be as good a time as any to do it." He was clearly irritated at the association's attempt to dictate who the ERC could invite to its meeting. Karl Hoyle seconded that theme, saying that just offering them the chance to make a presentation indicated that we have been more than fair. After some discussion about possible options, Darrel, Jordan and George all approved the idea of Rosemary issuing a polite "take it or leave it" letter. As Secretary of the committee, Rosemary would formally invite the association to give a presentation at an ERC meeting on Friday, March 25 at 1:00pm. In the invitation, she would state who would be in attendance, and that would include a representative of the Bank, and that list of attendees would not be open for discussion. However, the ERC would allow the association great leeway on what they would like to say. They can spend their time talking about what a wonderful association they are, or they can attack S. F., or they can do both. The subject matter would be entirely up to the association. Effectively. After that discussion, Seattle made its presentation. Seattle said that they wanted nothing to do with the association unless the Board told them to take them. I will give you the memu that Seattle presented. In further discussion, Seattle stated that did not believe they could trust the association, and did not see an, chance that their operations could be turned around. They also stated that if they were asked to take them, they would request the right to "write their own ticket" which would be either a Supervisor. Agreement or & Consent Order that committed the association to submit a business plan that puts them in regulatory compliance within a 3-5 year period of time, and any meterial violations from that plan woul SPECIAL COUNSEL be considered an unsafe and unsound practice that would result in a Luisir valorshup. A briet discussion then arose as to whether Scattle should formally present a list of what they would put in any such document, and there were several (including me) that were curious about seeing such a list, but Darrel and George thought it would be unnecessary at this time. DE then presented its case, and Rosemary stated that she did not think that transferring Districts would be a bad precedent, given the extraordinarily unique circumstances of the case. In particular, she said that she had never seen the amount of leaks for a solvent association as has occurred with this association, which has damaged the association and poisoned the supervisory relationship between the Bank and the association. However, she also noted that there is no evidence that the Bank was behind any leaks, as the ERC learned that the only clear evidence of a disclosure was an approved disclosure by Mr. Black when he was in Washington. She clearly wanted an new and better examination report in order to build a case for an Enforcement Action, and was distressed to hear that Seattle did not want to take on the job. She then strongly criticized San Francisco for taking an unnecessarily hard line on just about every issue that came up on this association, and in this light thought an independent analysis would be helpful. Seattle, in response, stated that an independent analysis is all fine and good, but they feared that it would be just a delaying tactic on the part of the association, and they were concerned that 6-9 months down the line they would be in the same boat as S. F., "on trial" for being too harsh in regards to handling the association. Rosemary responded that even if that were true, we would at least have had some time of "peace" to get a quality Examination completed and therefore have a more accurate picture of the current condition of the association. In the followup discussion, the question of trust predominated. Hershkowitz stated that the association will fight to the death unless they have a regulator they think they can trust to allow them enough room to run a profitable institution. Both Seattle and I Jumped on that, with Seattle saying that they were not satisfied by Keating s explanation why he has violated prior commitments made in the Change of Control application. I noted that even if Steve was right in the sense that the association's misrepresentations were "carefully worded" so as to prevent someone from going to court and saying they are a bunch of liars, that still does not preclude the fact that whether the misrepresentations were legally "actionable" or not, as an SA, I would have been angered by the deception, and would treat the association with appropriate suspicion. That then lead into what it would take to persuade the association to play it straight with whoever winds up supervising them. I finally asked Steve what type of a two-by-four it would take to get their attention (after, of course, recounting the old story of why did the farmer hit the jackass over the head with the two-by-four, "I first needed to get his attention"), and the discussion then evolved into what would be needed to get the association to play by the rules. I see a budding consensus building that some sort of a two-by-four 15 |