Union Federal Bank, Los Angeles, five years ago a $2 billion-asset California thrift, was closed by the Office of Thrift Supervision on Friday. It was the first thrift failure since May 1995.
For the past several years, the thrift, under new management and with the cooperation of lenders, sold off most of its assets and deposits to shore up its finances. Gains from sales largely offset losses from nonperforming loans, but the institution could not generate enough income to build up its capital.
When it closed, Union Federal's total assets were down to $32.5 million.
"The aggressive downsizing by Union Federal's management, ... significantly reduced the cost of the failure and exposure to the federal deposit insurance funds," said John Downey, OTS executive director for supervision. He noted that if Union Federal had failed in 1994, it would have cost the government more than $100 million.
Dean Witter Trust FSB, Jersey City a subsidiary of Dean Witter Discover & Co., and a newly chartered federal savings bank, has assumed about 1,000 deposit accounts totaling about $30.6 million. Union Federal's sole office reopened as a Dean Witter branch on Monday.
Dean Witter will pay the Federal Deposit Insurance Corp. $4.1 million for the thrift's deposits and the right to purchase $2.7 million in assets.
This is the first time a thrift has failed since the FDIC assumed responsibility for troubled savings associations from the Resolution Trust Corp. last year.
The failure will cost the Savings Association Insurance Fund about $10.3 million.