Free Motion in Limine - District Court of Federal Claims - federal

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 1 of 16

1

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

- x
AMBASE CORPORATION and BANCORP, INC., Plaintiffs, -andFEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Intervenor, v. UNITED STATES OF AMERICA, Defendant.
x

Civil Action No. 93-531

Washington, D.C. Tuesday, November 9, 1999 The deposition of ROBERT BROWNEL O'BRIEN, JR., called for examination by counsel for Defendant in the above-entitled matter, pursuant to
Notice, in the offices of Cooper, Carvin &

Rosenthal, Suite 200, 1500 K Street, N.W.,
Washington, D.C., convened at 10:20 a.m., before

Emma N. Lynn, a notary public in and for the District of Columbia, when were present on behalf of the parties:

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 2 of 16

17 1 2 3 4 5 6 7 8
9

then at a rate of about a point and a half a year, and it was simply a business strategy. It had nothing to do with City Federal, except that we saw that they had, indeed, done this, had employed the techniques that we ultimately employed, so we had a model to copy. But that was not -- I mean we weren't competing with them that vigorously.
Q.

Was another business reason for wanting

10 11 12
13

Delray because you felt Florida was a booming place in terms of commercial lending, construction lending and you could get into that?

A.

Not at all.

We had been advised by our

14 15 16 17 18 19 20 21 22

investment bankers that it was a growth state. Deposits in Florida averaged twice that of our average deposits in New Jersey, taking the whole banking system as a whole. And it was a tremendous

place to not only gather deposits but also make first mortgage loans on owner-occupied homes.
Q.

Well, look at page 4 of the exhibit, if In the second sentence, it says -- I

you would.

will start with the first sentence.

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 3 of 16

43

1
2

will employ our purchase accounting techniques and
so forth, but no cash assistance.

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
18

So my then chief financial officer, Anthony Majeski, went down and did some due diligence for a week; and he came back and said this is a company that does not have any bad assets. They made a marketing mistake and they are

losing 10 million a month in deposits; and if we get those deposits back over time, the company will return to profitability. Most failed savings and loans at that time failed because of poor asset quality. was not the case in Delray. This

They also had 12

excellent, well-located branches, so we thought that we could employ our deposit gathering marketing expertise and eventually turn it around. BY MR. LEVITT:
Q.

Did Carteret obtain an explicit promise

19 20 21 22

from FSLIC that supervisory goodwill could be counted as regulatory capital when it acquired Delray? MR. KIRK: Objection to the form of the

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 4 of 16

44

1 2 3
4
5
6

question.

The documents fully cover the explicit

promises that were given. But go ahead and answer the question. THE WITNESS: BY MR. LEVITT: I would say yes.

Q.

From whom at FSLIC did Carteret obtain

7
8

this promise? MR. KIRK: terms of negotiating BY MR. LEVITT:
Q.

You mean the documents or in

9 10 11 12 13
14

I said an explicit promise and you said Who gave

you thought you got an explicit promise. that explicit promise?
A.

I think it was director Beesley and the

15
16

Federal Home Loan Bank Board.
Q.

Did Carteret explicitly obtain a promise

17
18 19
20

that goodwill could be amortized for 40 years?
A.

In my recollection, yes. Why did it want this latter promise? We wanted the maximum term to amortize

Q.
A.

21 22

the goodwill, obviously.
Q.

And why?

What were the advantages?

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 5 of 16

176
1

Q.

Did you start doing this after the

2
3

acquisition?

A.

A little bit.

But the other term for

4 5 6 7 8 9

these is junk bonds, and the media and the regulatory framework made a big thing out of one of the things that killed the savings and loan business was overreliance on junk bonds. never a big part of our portfolio. two percent. Q. Is that what he was talking about? Yes, he would have loved to have had us It was

Maybe one or

10
11 12
13

A.

to have 40 percent of our assets in junk bonds.

Q.

Did Home Insurance Company have a lot of

14

junk bonds?

15
16 17
18

A.
Q.

I think so, but I don't know. Was Home Insurance Company allied with

Drexel in any way, buying junk bonds from Drexel?

A.
Q.

I think so. Did Carteret Savings Bank buy junk bonds,

19

20 21 22

even though a small amount?
A.

No.
Did you have any junk bonds before this

Q.

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 6 of 16

180
1

A.

No, and it didn't affect one family or So that

2 3 4
5

multi-family residential structures.

business continued to be good in the state of Florida.
Q.

Your testimony is affected more like

6
7 8

shopping centers and that sort of thing, hotel
construction?

A.

Yes.

Office buildings and commercial

9 10 11 12 13 14
15 16

structures like warehouses and so forth.
Q.

In the second-from-the-last paragraph

under "Income Property" it suggests that Mr. Manley wanted to go more on the basis of a vision and less by the book? You see that?

A.
Q.

Like to see more aggression.
"Greater reliance on the particular

17
18 19 20

individual or corporate project team and their

vision rather simply cranking out numbers.
A.
Q.

II

Yes. Did Carteret sort of embrace that idea?
No, we didn't.

21 22

A.
Q.

Did you like that idea personally?

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 7 of 16

182
1

understood it? A. Not as I understood it. But because we

2

3 4 5 6 7 8 9 10 11
12
13
14

went by the numbers and by the book, it took time to analyze a credit and to say yes or no; and, of course, the borrower wanted an instant answer, and we just were not going to do that. One of the reasons we ultimately all got fired is because we didn't do what he wanted us to do, with the speed and rapidity and, I almost want to say, recklessness that he was asking for.
Q.

So you believe when AmBase came in they

were reckless?

MR. KIRK:

Objection. No.

THE WITNESS: MR. KIRK: question. THE WITNESS:

15

Objection to form of the

16
17

No.

But Manley's vision of

18 19 20 21
22

new business development was not the way a prudent banker would develop business. BY MR. LEVITT:
Q.

Was it reckless? MR. KIRK: Objection. This has been

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 8 of 16

183 1
2
3

asked and answered. THE WITNESS: No.


BY MR. LEVITT:
Q. either? It wasn't reckless, but not prudent

4

5
6 7

A. Q.
A.
customary. Q.

I withdraw the word "reckless." This wasn't prudent either? It was more aggressive than was

8

9
10

In the first full paragraph on the second

11 12 13
14

page of the document, you are talking about what you report Mr. Manley said about the mortgage banking business.

A.
Q.

Right. And to summarize, he liked it, but he

15

16 17 18

said he thought it was less sophisticated than he would like and there needed to be more gray-haired people in it?

19
20

A.
Q.

Yes. But I don't understand from that -- what What was the precise

21 22

does that mean exactly?

problem he was articulating to you -

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 9 of 16

196
1

Q. taker?

Would you have regarded him as a risk

2
3
4

A.

Yes. MR. KIRK: Objection to the form of the

5 6
7

question. BY MR. LEVITT: Q. taker? More so than you, yourself, were a risk

8
9

A.
Q.

Yes. Because you were more steeped in the

10

11 12
13

traditions of banking than he was? A. Q. taking? MR. KIRK: question. THE WITNESS: BY MR. LEVITT: Yes. Objection to the form of the Yes. Would you say Mr. Manley relished risk

14

15
16

17
18

19 20 21 22

Q.

We talked about whether Carteret made

loans to Gruntal and you said they never asked. Did it ever provide financing to customers of Gruntal who wanted to buy stock on margin?

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 10 of 16

197
1

A.
Q.

NO. Also Mr. Manley said he would like Home

2 3 4
5

to be able to tap into Carteret's low cost deposits. I guess insured money could be acquired

at lower cost than on the market? A. Right. Did this ever happen? No, not to my knowledge. Do you know whether Home Insurance

6 7
8

Q.
A.

9

Q.

10 11 12 13 14
15

Company's borrowing costs went down as a result of AmBase acquiring Carteret?

A.

I don't know, but it would be very

surprising if they would have. Q. If you look at number (13), which is the

on the last page of the document, he wanted Carteret to get into southern California with LPOs, it says.

16 17 18 19
20

A.
Q.

Loan production offices. I was going to ask you what LPOs were.

Loan production offices?

21 22

A.
Q.

Yes. Did Carteret ever do this?

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 11 of 16

226 1 2 3 4
5
6

must remain a profitable company. Then you go on to say we need to trim expenses by a million dollars per month. What costs were too high?
A. Q.

I don't recall all of them. It sounds to me like you are saying here

7 8 9
10

unless we pull in our belts, we may go under and not be a profitable company anymore. you're saying here? MR. KIRK: question. Objection to the form of the Is that what

11 12 13
14
15

The document speaks for itself. BY MR. LEVITT:

Q.

Is that what you thought in your head? No, not quite, but -You said it to alert people, is that it? Right. MR. KIRK: He didn't say it. There is no

A.
Q.
A.

16
17

18

place in here where it says if we don't trim costs

19 20 21 22

the company will go out of business. we should trim costs. THE WITNESS: BY MR. LEVITT: Right.

He is saying,

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 12 of 16

229 1 2 3
4

eliminate positions and close some branches. the goal was to save 12 million a year. You see that?
A.

And

Yes.
MR. KIRK: It says, "close, consolidate

5

6
7
8 9

or sell some branch offices." MR. LEVITT: Right.

BY MR. LEVITT:
Q.

I take it closing or consolidating or

10
11

selling branches would save expenses, net expenses

if they weren't profitable operations, right?
A.
Q.

12
13

Right. So you had some branches that were not

14 15
16

profitable and you were thinking about selling those off? MR. KIRK: the document. David, you are misrepresenting

17 18 19 20 21 22

The very next sentence says, "Most

of these branches are fine, well run and profitable." BY MR. LEVITT:
Q.

"But we cannot be all things to all

people and all markets," so some of the branches

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 13 of 16

235

1
2

A. Q.

Yes.

Well, he was asked to resign.

He didn't shy away from saying he was

3
4

fired.

A.
Q.

No, he was, you're right.

5

Whose idea was it to get rid of Mueller? Manley. Was Manley unhappy that the commercial

6 7 8
9

A.

Q.

lending was going bad and he blamed Mueller for it?

A.
Q.

I think in part, yes. Did Manley express to you that he thought

10

11 12 13
14

there had been problems with the underwriting of the commercial lending and Mueller was responsible for that?
A.

He never expressed that to me, but I

15
16

think he felt that was the case.

Q.

If you look at page 5, please, in the

17
18

first full paragraph beginning "Our financial
strategy," it says, "Our financial strategy will be

19 20 21
22

to shorten up the duration of our corporate portfolio and to remove interest rate risk. You see that?
11

A.

Uh-huh.

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 14 of 16

236
1

Q.

When you say,

"shorten up on the duration

2
3

of our corporate portfolio," does that mean that the maturities -- you try to make loans that had a

4
5
6 7

shorter maturation time?

A.

Yes. And was there a problem with that? No. Did you have an interest rate risk

Q.
A.
Q.

8

9 10
11

problem at the time beyond what you should have had?

A.

Not that I recall.

But if you will go

12

on, you will see that I say,

"we are one-half of

13 14 15 16 17 18 19 20
21

Home Group, the other half primarily consists of Home Insurance Company, which by its very nature means that it is a long-term investor. We

therefore should be short-term like a California savings and loan with all of our mortgages adjustable in rate and flexible in term." This is just adopting to the new corporate strategy. Q.

You say two sentences down,

"We will

22

generate profits this winter by prudently selling

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 15 of 16

256
1

A.

And we were second to Massachusetts which

2 3 4
5

was the worst state.
Q.

Why did you think it got hit so bad?

Was

the tax law at fault?
A.

There were a lot of things happening.

6 7 8 9 10
11

Governor Florio put a huge tax on the communications industry which caused AT&T and other like companies to move out of the state, taking 22,000 jobs with them. There were huge

consolidations on Wall Street and in the New York
money center banking industry, which were causing

12 13 14 15 16 17 18 19 20 21 22

in the case of Chase and Chemical, 13,000 layoffs. Most of these people lived in New Jersey. So people were under stress as a result of this so-called recession and were delinquent in paying their mortgages; builders were delinquent in paying their payments. It was a temporary thing,

but the regulators did not give us enough time to wait it out.
Q.

Is it your testimony today that you don't

think there were any imprudent commercial loans on Carteret's books but for --

Case 1:93-cv-00531-LAS

Document 260-20

Filed 02/05/2008

Page 16 of 16

257 1
2
3

A.
Q.

I don't think there were.
-- what you termed in this memo the

recession?

There wouldn't have been any defaults

4
5

or minimal defaults?
A.
I

wouldn't want to say that.

There is

6
7 8
9

always some mistakenly made loans, but I would not characterize our portfolio as imprudent.
Q. Were you aware of the Government

examiners who looked at the bank in '89 and '90 and what they demanded with respect to classifying?

10

11
12

A.
Q. A. Q.

Yes. Classifing loans? Yes.
Is it fair to say you didn't agree with

13
14

15 16 17 18 19 20
21

any of that? A. Absolutely. They came in and appraised

loans on what we call a liquidation basis rather than a going concern basis. And it was two

entirely different methods of evaluating the same credit. And so loans were overnight bad that the

night before had been good. The fundamental collateral was there.

22