When it comes to the savings and loan business, William O`Connell hates to take no for an answer.
In the mid-1970s, thrifts were under fire from community groups for allegedly redlining city neighborhoods, refusing to lend money there. O`Connell, then head of public relations for the industry`s main trade group, prodded his staff to get newspapers to run editorials trumpeting S&Ls` efforts in urban areas.
The staffers came up empty-handed, much to O`Connell`s chagrin. ”Most of (the thrifts) weren`t doing anything,” said a former employee. But
”O`Connell loves the industry so much that he was kind of blind to that.”
O`Connell, 64, now president of the Chicago-based U.S. League of Savings Institutions, is still the ultimate advocate for the savings and loan business. ”He eats, drinks and sleeps the industry,” said the ex-staffer.
”My job is to keep as many institutions alive as I can,” O`Connell said. ”They all pay dues to the league. I take that responsibility very seriously.”
This single-minded zeal has helped the league win many legislative and regulatory victories, observers say.
”O`Connell is probably the most brilliant legislative strategist on the Washington scene today,” said Jay Janis, former chairman of the Federal Home Loan Bank Board, which regulates federally insured thrifts.
But critics increasingly question the league`s ability to protect S&Ls as specialized housing lenders, distinct from other kinds of banks. More bluntly, they contend that some of the league`s positions may have hastened the industry`s demise by sheltering poor managers.
”In attempting to champion the short-run interests of its members, the league has often sacrificed their long-run interests,” said R. Dan Brumbaugh Jr., former Bank Board deputy chief economist and former chief executive of a California thrift. The league is ”among the most self-defeatingly myopic” of trade groups, he added.
The savings and loan business hit hard times in the early 1980s, when high interest rates led to a profit squeeze. Thrifts held low-yielding mortgage loans but had to pay high rates on deregulated deposits. To ease the problems, the league pushed for lenient regulatory and accounting standards.
”The access of the league and thrift executives in general to the levers at power at the Bank Board is unparalled in any other industry regulated by the government,” said Brumbaugh.
Yet troubles persist, despite relatively low rates in recent years and partly because of bad loans and investments. More than 20 percent of federally insured S&Ls lost money last year, and the industry posted a net deficit in the fourth quarter, according to Bank Board figures.
About 14 percent of the nation`s 3,200 S&Ls are insolvent, but the Federal Savings and Loan Insurance Corp., which insures their deposits up to $100,000, lacks funds to close or merge them. According to the General Accounting Office, the fund was insolvent at the end of last year to the tune of $6.3 billion.
O`Connell, who has said he will step down as league president at the end of next year, said the problems have been exaggerated by the Bank Board and GAO.
”Overall, the state of the business is excellent,” said O`Connell.
”There`s a mopping-up operation to be done, but I`m very optimistic about the business.”
In harsh press releases, the league has said the GAO`s numbers give an
”erroneous” and ”distorted” view of FSLIC`s condition. The group says this grim picture of the insurance fund is aimed at drumming up support for a five-year, $15 billion FSLIC recapitalization plan sponsored by the Reagan administration.
The league has convinced Congress that one-third to one-half that amount over two years is all that`s needed. The money would be raised by selling bonds, on which the industry would have to pay interest. There are also fears that a larger plan would prompt regulators to be too aggressive in shutting troubled thrifts.
Virtually all of O`Connell`s career has been devoted to representing S& Ls. In 1949, after a brief stint as a newspaperman in Chicago, he helped set up a public relations firm whose early clients included some of the city`s biggest S&Ls as well as the league.
There are also family ties to the business. O`Connell gave his younger brother John, an attorney, the idea of founding Skokie Federal Savings and Loan Association in 1956.
S&Ls are O`Connell`s ”only passion,” said John O`Connell, chairman of Skokie Federal, the Chicago area`s 13th biggest thrift. A nephew works there and an older brother is a director.
For the last 38 years, O`Connell has been highly influential in league affairs. Observers say he played an important role in the appointment of his predecessor as president, Norman Strunk, and was a close adviser to Strunk before his retirement in 1980, when O`Connell became president.
O`Connell is known for his direct manner. ”He only listens with one ear,” said admirer Kenneth Guenther, executive vice president of the Independent Bankers Association of America.
”He`s always promoting his own agenda,” Guenther added. ”You call him up on your agenda and you end up being converted to his agenda.”
This bluntness has won him respect in some quarters in Washington. But others consider his lobbying efforts heavy-handed and say they haven`t always been welcomed by the league`s own Washington specialists.
”He`s too aggressive, too brash,” said a former Washington league employee. ”The lobbyists always had to take care of a series of things after he left town.”
O`Connell, who has a condominium in Washington, spends most of his time there when Congress is in session.
But observers say his greatest skill may lie in his ability to mobilize local S&L executives to lobby their congressmen.
Legislators traditionally have had a soft spot for the S&L business because of its link to housing. ”Members of Congress don`t view S&Ls like a real business,” said a lobbyist for another trade group. ”It`s almost like a ward of the state.”
O`Connell and other league officials have effectively pushed the idea that S&Ls are needed to ensure that mortgage loans are available for would-be homeowners, though the notion is disputed by some experts.
Moreover, O`Connell ”follows the premise that legislation is war–you`ve got to mobilize the troops and fight it as a war,” said Guenther.
A case in point is the House vote in May on the FSLIC plan. The deck seemed to be stacked against the league after House Speaker Jim Wright (D., Tex.) endorsed the administration`s proposal a week before the vote, amid press criticism that he was overzealous on behalf of troubled Texas thrifts.
Nevertheless, the league, which spent $97,500 to bring some 175 S&L executives to Washington, chalked up a more than 100-vote margin against the $15 billion plan. ”They mounted one of the most effective lobbying efforts seen this year,” said Rep. Thomas Carper (D., Del.), who led the unsuccessful fight for the administration`s plan.
The league`s argument that the Bank Board couldn`t efficiently manage more money apparently appealed to some legislators. Under Chairman Edwin Gray, who is leaving at the end of the month, the Bank Board has been plagued by high staff turnover and charges of administrative ineptness.
The league also boasts a healthy political action committee that contributed $425,925 to federal candidates in the last two years, according to the Federal Election Commission.
Critics view the league`s position on the FSLIC plan as shortsighted. Gray has said that sick thrifts should be dealt with quickly because their losses have mounted to more than $10 million a day and the industry pays about $4 billion a year in additional interest because of concerns about its health. ”The longer the insolvent institutions are kept open, the greater costs will have to be borne,” said Brumbaugh, the former Bank Board economist. He said owners of insolvent thrifts are inclined to take excessive risks because their capital has been depleted and is no longer at risk.
Some analysts believe taxpayers will have to pick up the tab because it would be too big a burden for the S&L industry. ”This is just a delaying tactic,” said Paul Horvitz, finance professor at the University of Houston.
O`Connell argues that many troubled S&Ls will rebound once economic conditions improve. ”When the turnaround comes, it will come very fast,” he said.
Many observers are particularly critical of a so-called forebearance provision in the House bill that would prevent regulators from closing minimally capitalized but ”well-managed” thrifts in economically depressed areas.
The league`s fight isn`t over, because the House and Senate are expected to hold a conference committee on the FSLIC matter Tuesday. Most observers doubt that funding will be increased much beyond the $7.5 billion in the Senate bill, at the most.
If the doomsayers are right, Congress might consider merging the FSLIC with the Federal Deposit Insurance Corp., which insures bank deposits. Some healthy thrifts are even considering converting to banks to avoid additional insurance premiums.
The question of ”exit fees,” penalties that the Bank Board would levy on S&Ls fleeing FSLIC, is among the issues that are increasingly dividing the league`s members. The trade group hasn`t taken a stance on the controversial matter.
Another touchy point is the secondary mortgage market, where home loans are pooled and sold. Traditional lenders who keep loans in their portfolios insist that government-sponsored mortgage agencies are stepping on their toes. O`Connell conceded that the trade group is ”more divided than when I took over.” A smaller competing group, the National Council of Savings Institutions, represents savings banks and larger S&Ls that seek broader powers.
Still, the league`s membership represents 98 percent of savings associations.
Despite a loss of 800 members since 1980 through industry consolidation, its $70 million budget is nearly 20 percent higher than that of the much bigger American Bankers Association because of income from service affiliates.
