Franklin Savings Association

Franklin Savings Association
Subsidiary
Industry Savings & Loan
Fate Insolvency
Founded 1889 (1889) in Ottawa, Kansas as the Ottawa Mutual Loan and Savings Association
Defunct February 16, 1990 (1990-02-16)
Headquarters Ottawa, Kansas
Key people
 Ernest M. Fleischer

Franklin Savings Association was an Ottawa, Kansas based savings and loan that was one of the largest failures of the savings and loan crisis.

Franklin Savings was founded in 1889. In 1972, Ernest Fleischer, a tax lawyer bought control. In 1981, a new business plan was developed for the thrift, and its assets grew from $200 million to $11 billion. The thrift bought a large amount of mortgage-backed securities and had dealings in financial futures and interest rate swaps. They had various complex securities that included deep discounted securities, long call and put options and strips (both interest only and principal only). They had also purchased junk bonds. The thrift had few traditional home mortgage loans on its books. The thrift's liabilities consisted primarily of Federal Home Loan Bank borrowings and repurchase agreements. In addition, over 70% of its deposits were obtained through brokers or telephone marketing programs.[1][2][3] The thrift also bought the stock brokerage firms of L. F. Rothschild Holdings Inc., Stern Brothers & Company, and Underwood, Neuhaus & Company.[4][5]

Franklin Savings was seized by the government in February 1990.[6] At the time it had assets of $9.3 billion and deposits of $4.6 billion. Franklin filed a lawsuit disputing the seizure, and U.S. District Judge Dale E. Saffels in Topeka, Kansas gave a ruling that said the seizure was illegal.[7] However, the government appealed and the lower court's decision was reversed by the United States Court of Appeals for the Tenth Circuit.[8] The court concluded that:

"A review of the administrative file clearly reveals a high-flying, debt-laden, troubled savings and loan. The record reveals the owners diverting millions of dollars into their pockets through large salaries, bonuses and dividends, notwithstanding the losses being incurred by the association. The record reveals a financial institution taking what the director deemed to be unacceptable risks with its depositors' monies. In fact, the record reveals a financial institution both unable and unwilling to comply with the director's requirements relating to safety and soundness concerns."

The appeal was upheld after the United States Supreme Court declined to review the case.[9][10]

See also

References

  1. ↑ 742 F. Supp. 1089 (1990) FRANKLIN SAVINGS ASSOCIATION and Franklin Savings Corporation, Plaintiffs, v. DIRECTOR OF THE OFFICE OF THRIFT SUPERVISION, Defendant. Civ. A. No. 90-4054-S. United States District Court, D. Kansas. September 5, 1990
  2. ↑ Franklin Savings Association, a Kansas Savings & Loan association; and Franklin Savings Corporation, a Kansas Corporation, in Behalf of Itself and in Its Derivative capacity As Controlling Shareholder of Franklin Saving association, Plaintiffs-appellees and Cross-appellants, v. Director, Office of Thrift Supervision, Defendant-appellantand Cross-appellee,andthe United States of America, Defendant-intervenor and Cross-appellee, 934 F.2d 1127 (10th Cir. 1991).
  3. ↑ Lowy, Martin (1991). High Rollers: Inside the Savings and Loan Debacle. Greenwood Publishing Group. p. 172. ISBN 978-0275939885 – via Google Books.
  4. ↑ Zonana, Victor F. (February 23, 1988). "L. F. Rothschild, Jolted by Losses, to Merge With Kansas S&L Unit". Los Angeles Times.
  5. ↑ Cole, Robert J. (February 23, 1988). "Savings Group to Get L.F. Rothschild". New York Times.
  6. ↑ Hayes, Thomas C. (February 17, 1990). "U.S. Seizes Franklin Savings Association". New York Times.
  7. ↑ Buzbee, Sally Streff (September 7, 1990). "OTS Controversy Puts Kansas Bank in Spotlight". Associated Press.
  8. ↑ "Federal Takeover of Franklin Savings Upheld". New York Times. May 30, 1991.
  9. ↑ Court Takes Home-Office Tax Case March 24, New York Times 1992
  10. ↑ Margolies, Dan (November 14, 1999). "Franklin loses appeal bid". Kansas City Business Journal.
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