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Investor with the Midas touch

Investor with the Midas touch

William Edward Simon thinks big. The 58-year-old former Treasury Secretary bought to Hawaii's largest savings and loan on September 8, hired a former vice chairman of the Federal Reserve Board to run it and indicated he wants to use his new holding company to assemble a financial-services network spanning the Pacific. Even its name is ambitious--H. F. Holdings stands for Honolulu Fed, says.

His new empire won't eclipse the real Fed in size or power. But the purchase signals of lofty change in direction for Simon, an investor whose golden touch has earned him and his associates $445 million since 1983 from leveraged buyouts that were resold. The vehicle used then by Simon and Raymond Chambers, his principal ally, was Wesray, a private partnership that bought 20 companies beginning in 1982. The only thing those buyouts had in common was that their old owners held a low opinion of them and, it appears, sold them too cheaply.

This time, Simon is focusing his attention on financially troubled West Coast banks and S&L's that would benefit from capital infusions. "Our strategy," he explains, "is to identify quality of S&L's that can be acquired--hopefully, a network of them." With new capital--up to $60 million for Honolulu Federal Savings & Loan--he hopes that H. F. Holdings can expand them into new services. Ultimately, these companies may form a financial juggernaut perfectly positioned to service and feed off the burgeoning east-west Pacific trade.

The key players

For his new venture, Simon is being joined by new partners. He has been only a limited participant in Wesray this year, says Chambers, who engineered last spring's $250 million purchase of Avis Rent A Car from Beatrice Companies. Explains Chambers: "Bill wants to enjoy the fruits of retirement and to pursue other investments that would not compete with Wesray."

Simon CEO at H. F. Holdings will be Preston Martin, 62, whose term as No. 2 person at the Federal Reserve Board expired in March. Before the Fed stint, Martin had been chairman o the Federal Home Loan Bank Board, which regulates S&L's. Joining Simon and Martin as partners are Roy Doumani, chairman of World Trade Bancorp in Beverly Hills, Calif.; Los Angeles attorney Gerald Parsky, who served under Simon as assistant secretary of the Treasury, and California real-estate developer Larry Thrall.

At Wesray, Simon sometimes bought and resold companies within two years. Not this time, says Martin. "This is not a leveraged buyout," he explains. "We're in this for the long haul." Chambers insists that Wesray's purchases of such companies as Gibson Greeting Cards, Anchor Glass Container, Heekin Can and Permian Corporation were for the long haul, too. But when the market for new stock issues grew hot in 1983, Wesray partners began unloading some or all of their ownership of these companies.

Profits on those sales were legendary. Wesray participants put only $1 million in cash into Gibson Greetings in 1982--the other $79.5 million was borrowed. When gibson subsequently went public starting in 1983, Wesray investors made a $200 million killing.

The same magic worked time and again. Wesray bought Permian, an oil-gathering company, in 1983 for $10 million in cash and $375 million in debt and realized a $137 million profit when it was sold to National Intergroup 21 months later. Most recent was a $21 million profit last June from the public offering of the Anchor glass-container business--the cash investment didn't exceed $1 million. Wesray still owns such buyout companies as Wilson Sporting Goods and Atlas Van Lines.

Picking up the pieces

Simon and Martin aren't proposing quick riches this time. The idea is to amass pieces--a savings and loan here, a bank there, maybe an insurance firm--that are worth more when put together and built up than they are separately. Martin says H. F. Holdings is actively looking for its next purchase. The ideal candidate: An S&L that stumbled because of high interest rates or real-estate losses but is getting back on its feet. That's an apt description of Honolulu Federal, whose net worth was wiped out by losses in 1984 and early 1985.

Just how many purchases Simon & Company will make, and how much money they are prepared to invest, isn't being revealed. H. F. Holdings will pay about $20 million in cash for the Honolulu S&L and will issue notes for the remaining $40 million. Martin suggests the partnership may also buy financial companies in such places as Singapore and Australia.

Simon's plunge into S&L's is not without its risks. Thrifts' fortunes wax and wane with housing and interest-rate cycles. But Simon argues: "We're not talking housing. We're talking financial services. That's what S&L's sell today." James Elliott, a Washington, D.C., consultant to savings institutions, believes Simon may have a point. Banks sell at higher multiples than S&L's, and Simon may see Honolulu as a bank in disguise. "The legal framework is changing fast," says Elliott. "If he can clean it up so it looks like a bank and lends like a bank, it will sell like a bank."