CHECK AMOUNT

278.00

I'll J.Jewet

SPECIAL COUNSEL

I've received your September 11 letter recounting our phone
conversation of the previous day. I feel compelled to respond
because I don't recall our conversation as outlined in your
letter.

1. You mentioned that you vere virtually finished putting
together the documents requested in Exhibit I of Richard
Sanches's August 31 letter. I recall no representation tha
Liacola vill" ask Kaye, Scholer to prepare the responses and
no mention of September 23. We are, of course, anxious to
receive the information requested and hope to have it as soon
as possible.

We discussed the scheduling of a meeting among you, ne, and
the Bank Board's staff in Washington. I stated that I would
not send examiners to Lincoln to perform the field visit,
scheduled for September 14, until after we had the meeting. I
cannot agree with your letter's statement that: "There will
be no on-site visit or additional information provided until
certain issues regarding the current examination are
resolved." I cannot predict if or when you will consider
those unspecified issues resolved. I stand by my statement
that the field visit will not take place until after we have
ortunity for the meeting we discussed. I
the the meeting is scheduled to take place on

Sincerely,

Mike

Michael Patriarca

Director, Agency Group

MP/ca

FHLBB-LIN-8932

bce: W. K. Black, C. A. Deardorff, G. Robinson, R. A. Sanchez

Record Copy: M. Patriarca, Agency Group

600 California Street

Post Office Box 7948

San Francisco, Callumia 94133-7848

Telephone 416-985-1009

TS-D11-0473235

SPECIAL COUNSEL

EX. 566

FROM

To: DOCHOWD-AIVASHDC

TOY CHESUSLR--FHLBSF

09/30/87 09:47:36m

FROM: MICHAEL PATRIARCA, DIRECTOR
AGENCY GROUP--SAN FRANCISCO-EXT: 1801
Subject: Lincola

As we proceed to try
each conclusions on the basis of what we know and
identify what we're
to reach conclusions on, it has become plain that
there is an incredibl 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 page
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 examinera
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 analyse those responses is characterized as harrassment by dragging

FILE: FILE181 OUTPUT C1 F.H.L.B. OF S.F VH/SP4 CMS

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 characterized 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

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 & 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 a 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 would

SPECIAL COUNSEL