An Empire Rising in the West

By Thomas McCarroll/New York

A 100-ft. Dutch windmill stands tall on the front lawn of William Simon's Long Island summer home. But despite his fondness for the unusual antique, the onetime Treasury Secretary and U.S. energy czar is no Don Quixote of the business world. There is nothing fanciful about his vision of assembling a financial empire in the Pacific Basin. In fact, Simon has helped mold a multibillion-dollar conglomerate that includes the largest savings and loan association in Honolulu and a merchant bank in Los Angeles. Last week an investor group led by Simon agreed to pay $157 million for Western Federal Savings & Loan, the fifth California thrift the group has tried to acquire within a year. Says Simon: "California is the gateway to the dynamic growth markets of the next century, in Australia, Hawaii and the Far East."

Megamillionaire Simon says he is simply following Horace Greeley's famous dictum by going west with his money. He has taken some high-powered talent with him in the investment partnership known as WSGP International. The head of WSGP's thrift unit is Preston Martin, a former vice chairman of the Federal Reserve Board and onetime chairman of the Federal Home Loan Bank Board. Gerald Parsky, a Los Angeles lawyer who served as Assistant Treasury Secretary under Simon, is his old boss's general partner and contributes his initials to the company's anagrammatic name. A select group of international investors, including Italy's Fiat-making Agnelli family, has pledged $225 million in capital.

In ten months WSGP has bought up five financial institutions, including Honolulu Federal Savings & Loan (assets: $1.7 billion), Southern California Savings ($1.5 billion) and World Trade Bancorp ($100 million), all for $119 million. The group's method is to look for bargains among sinking thrifts that also possess attractive real estate holdings. Then WSGP strips the institutions of problem loans and injects them with fresh capital, with the aim of selling out at big profits.

Last year, for example, WSGP took over Honolulu Federal in return for $17 million in new capital and $40 million in bonds. The group slashed the marketing budget and cut back operating hours; they also discounted $100 million in bad assets. Now the thrift could fetch as much as $150 million if sold.

Critics complain that federal regulators, panicked over the parlous state of the thrift industry, have been all too willing to approve WSGP purchases at giveaway prices. Perhaps in response to that outcry, the regulators have balked at two recent WSGP takeover bids, in San Mateo and Irvine, Calif. In turn, Simon & Co. have altered their business strategy: Marina del Rey-based Western Federal is a healthy and profitable S and L with about $2 billion in ! assets. The Western Federal deal must still be approved by federal regulators.

Controversy is nothing new to Simon, who once called the late Shah of Iran a "nut." Since he left Government in 1977, Simon has headed the U.S. Olympic Committee and co-organized a lay commission of free-market Roman Catholics who have challenged the liberal economic doctrines enunciated by American bishops. Simon, who is worth at least $200 million, intends to expand WSGP into other areas, such as venture capital. Says he: "There are a lot of unique opportunities out there." It is not tilting at windmills to predict that Simon will find them.