Columbia Savings & Loan Association
Investments and Home Loans
1958-1991
The rise and fall of Columbia Savings & Loan Association stands out as an extraordinary tale of greed and mismanagement even by the standards of an out-of-control S & L; industry in the 1980s.
Until government deregulation, Columbia had been a relatively obscure local thrift, controlled since 1958 by Holocaust survivor Abraham Spiegel.
In 1977, Spiegel brought in his son Thomas to run Columbia. Five years later, when the government started deregulating the industry, Thomas Spiegel saw opportunities to boost the family business.
Although thrifts were conceived with the goal of financing mortgages for homebuyers, deregulation aimed at revitalizing the industry allowed them to diversify their investments. The younger Spiegel, previously a stockbroker, realized there was more money to be made in the financial markets than in home loans.
He teamed up with Michael Milken, then the king of junk bonds at Drexel Burnham Lambert Inc., and Columbia became one of Drexel Burnham’s best clients.
The savings and loan quickly amassed a huge portfolio of high-yield, low-grade bonds and other securities. From 1981 to 1985, Columbia’s assets grew explosively from $373 million to $6.6 billion largely by deposits from brokerage firms.
The strategy paid off for a while. In 1986, Columbia reported record earnings of $194 million compared to $44 million in 1984 on the strength of its investment in junk bonds. Whereas interest rates on its deposits at the time varied between 7 percent and 11 percent, the yield on junk bonds was as much as 17 percent. On the basis of that success, Forbes magazine had named Columbia the nation’s best-managed thrift.
Meanwhile, Spiegel drew even more national notoriety as the highest-paid thrift-industry executive (earning $9 million in 1985) only the start of a slew of questionable spending that came to light when federal regulators began investigating Columbia’s business practices in 1990.
At the time, the Office of Thrift Supervision alleged that Spiegel had improperly diverted $19 million of Columbia’s funds and spent it, among other things, on personal trips and an arsenal of firearms valued at $55,000.
During that time, Spiegel became so concerned about his personal safety that he reportedly had an anti-terrorist shelter built at Columbia’s $55 million Beverly Hills headquarters and hired an entourage of bodyguards to protect himself and his family.
The fall was as dramatic as its rise. When the market for junk bonds collapsed in 1988, the thrift was holding a $4.2 billion portfolio of such bonds, an estimated one-third of all junk bonds held by thrifts nationwide.
Columbia reported losses of $591 million in 1989. Thomas Spiegel resigned as chief executive, and two years later, government regulators seized the thrift and liquidated it at a cost to taxpayers of $1.2 billion.
Unlike other S & L; high-flyers like Charles Keating, Spiegel never served jail time for his dealings as head of Columbia. He refused to plea bargain, and a jury acquitted him of criminal charges that he had squandered the thrift’s funds.
Edvard Pettersson
