The Savings And Loan Scandal -- Neil Bush Stands In Shattered Ruins Of Denver Thrift

DENVER - Neil Bush hardly knew Michael Wise, the engaging head of fast-growing Silverado Banking, Savings and Loan Association, when the two men sat down for breakfast at a Denver restaurant in 1985. They had only chatted once at a dinner party, so Bush was a little surprised when Wise invited him to join Silverado's board of directors.

Bush, then 30, did not know a thing about the thrift industry, and did not pretend to. His only banking experience was a summer job filling out forms in the trust office of a Dallas bank. He had trouble understanding a thrift's financial statement. His own oil business was in the red: In two years of drilling, he had hit mostly dry holes.

The most obvious reason for Wise's interest in him was inescapable, if distasteful to George and Barbara Bush's third son. ``I would be naive to think that the Bush name didn't have something to do with it,'' Neil Bush said in a recent interview.

Wise was not the first Denver businessman to gravitate toward Bush. Two of the city's wealthiest developers had given him the money to start his drilling company at age 28. But, if ever there was a time to look a gift horse in the mouth, that morning was it.

Five years later, Bush stands amid the wreckage of reputations and fortunes from one of the 10 biggest thrift failures in the country, battling efforts to transform him into a symbol of the entire savings-and-loan scandal. He faces administrative charges that he violated banking regulations in the way he handled Silverado's transactions with his business partners. The Federal Deposit Insurance Corp. (FDIC) yesterday said it will decide within the next two months whether to file suit against him and other directors to recover some of the estimated $1 billion cost of liquidating Silverado.

Even if Bush wins his case with the regulators - as he insists he will - the consequences of his Silverado days are still steep: a political embarrassment for President Bush and the Republican Party, a cloud of uncertainty over whatever political future he himself might have had, a year of his life lost to the controversy.

That Neil Bush would venture into such a thicket so seemingly unprepared does not surprise some who know the Bush children well.

``Of the five, he is the most naive, the most genuine, a classic babe in the woods,'' a senior White House official said. ``Watching politicians virtually all his life, you would think he would know about playing all the angles and watching for the pits. He just never has.''

When Bush signed on in August 1985, Silverado was a troubled $1.5 billion institution in a shaky industry. Major thrifts in at least six states had failed.

Reports by federal bank examiners, which Bush said he did not read, had documented the risky lending practices that powered Silverado's explosive growth. The thrift's dealings with Bush's business partners raised serious conflict-of-interest questions that Bush later told regulators ``didn't enter my mind.''

One of the ironies of his situation is that Neil Bush, now a standard topic at the president's news conferences, has made a point for years of not worrying his father with his business affairs.

In the shorthand of families, ``Doro'' - Dorothy - was the shy one, Marvin the courageous one, Jeb the serious one, George W. the feisty one and Neil the nice one, the good kid.

His siblings toasted ``Mr. Perfect'' at his wedding in 1980 to Sharon Smith, whom he met while knocking on doors in New Hampshire for his father's presidential campaign. After his father's election as vice president, the couple moved to Denver.

It was a perfect town for an optimist. The worldwide rise in oil prices set off a boom in exploration in the energy-rich Rocky Mountain states.

Bush spent three years learning the ropes at Amoco Production Co., then made his move, forming JNB Exploration Co. in 1983. By then, prosperity was fading fast. Still, ``I thought we were going to clean up unbelievably,'' said partner Evans Nash.

One big reason Bush hoped for oil was his desire to move on to politics or public service. He had a vision that the Bush family would be to the Republicans what the Kennedys were to the Democrats.

Unlike the average 28-year-old oil man, when Neil Bush sought investors in his company, Denver's business leaders listened. His first taker was Bill L. Walters, a prominent Denver developer who had amassed a reported net worth of $200 million before he was 40. In 1987, he told reporters he owned 24 million square feet of undeveloped land in the Denver area, the equivalent of the city's downtown area.

Walters seemed to be as solid as they come, the owner of a bank and chairman of the Denver Chamber of Commerce in 1987.

Walters agreed to give JNB $150,000 in 1983 in return for a 6.25 interest in the firm.

Next came Kenneth M. Good.

Like Walters, Good was a self-made man who fashioned a fortune from Denver real-estate deals. But while Walters essentially was a private man, Good seemed to crave attention. He drove a Maserati, flew to Monte Carlo on a six-seat private jet and alternated silk suits with jogging outfits for business meetings.

When Bush approached him, Good had just weathered a spell of nasty publicity. A competitor alleged in a civil suit that Good had gained inside information through a romance with a Colorado state official. State legislators claimed he won special treatment by lavishly entertaining other state officials.

To JNB's partners, though, he was precisely the man they were looking for. ``He went for high-risk ventures, which is probably why he was interested in my oil business,'' Bush said.

Good put up $10,000 and obtained a line of credit from Walters' bank that eventually totaled $1.7 million. In exchange, he took 25 percent of the partnership. He also lent Bush $100,000 to invest for himself. When the investment did not pay off, Good forgave the loan.

Like Walters and Good, Wise was not bothered by Bush's lack of business triumphs when he sought him out for Silverado's board. ``Neil Bush was on the board because of Mike Wise's ego, nothing else,'' one former Silverado executive has said. ``He was the son of the vice president. It looked good.''

Bush saw Wise's offer of an $8,000-a-year board position as a chance to gain experience ``establish friendships and business relationships.'' But Silverado's chief operating officer, Richard Vandapool, said Bush and other ``outside directors'' had no concept of the exposure they faced as board members.

``I don't think any of them understands the risks . . . the magnitude of the potential liability inherent in their rubber-stamping directorships,'' Vandapool wrote to Wise not long after Bush joined the board.

Silverado was one of the fastest-growing thrifts in Colorado, leaving behind single-family home mortgages, once the heart of the thrift business, in favor of hotels, condos, office complexes, shopping centers and land. The thrift doubled and redoubled in size in the speculative frenzy spawned by the oil boom.

Federal regulators had expressed increasing anxiety about Silverado's high-risk loans. A month after Bush joined the board, they lowered Silverado's rating to 4, the second-lowest rating on a scale of 1 to 5. But they did not sound the alarm until 13 months later, when Silverado's growing loan losses and apparent attempts to hide them provoked a full-scale examination of its books.

``There certainly were problems when Neil Bush came,'' said David Paul, Colorado's commissioner of financial services. But until the 1986 inquiry, ``they appeared to be correctable.''

What the examiners found then was depressingly typical for sick thrifts: inflated appraisals, not enough cash down from borrowers, too much concentration in commercial real estate, too little capital. In particular, they criticized practices that served to camouflage Silverado's weak capital base, including buying soured real estate from developers in exchange for their purchase of Silverado stock.

Wise and Walters, in particular, appeared to be using such deals to keep each other afloat, the regulators found.

The regulators also took issue with decisions approved by the board's audit and compensation committees, on which Bush served. Silverado engaged in ``opinion shopping'' when it switched audit firms and awarded ``excessive'' bonuses that boosted Wise's salary to $1.3 million in 1986, the regulators said.

At the request of the bank examiners, the U.S. attorney's office and the FBI in Denver began looking at Silverado's records.

Silverado was seized in December 1988 because of ``massive amounts of poorly underwritten loans with excessive credit risk,'' according to an FDIC summary.

Federal officials from the Topeka, Kan., office recommended the institution be shut down in September that year, but their supervisors in Washington took no action for two weeks. The Treasury Department is now investigating whether the closure was purposefully put off until after November, when George Bush was elected president.

Silverado's failure, the biggest in Colorado history, sent a shock wave through Denver's already traumatized economy. Walters defaulted on about $91 million in loans; Good defaulted on $31 million in loans.

The Office of Thrift Supervision (OTS) banned five Silverado executives from the industry, then, in February, filed three charges against Bush, who had resigned from the board in August. A hearing is scheduled for September on a proposed ``cease and desist'' order, one of its mildest sanctions.

Bush's misdeeds arose from the fact he ``accepted a position for which he was unqualified or untrained,'' the OTS alleged in a highly critical brief filed in support of its charges.

The OTS charged that Bush should have abstained from voting on $106 million in loans or purchases involving Walters while Walters was Bush's partner or creditor. Bush told regulators he voted because ``I didn't stand to benefit from any of the transactions.'' Bush's attorney, James Nesland, argues that the law did not prohibit Bush from voting.

The OTS also said Bush should have told Silverado officials that Good had pledged to infuse $3 million into JNB at a time when the developer persuaded Silverado to forgive $8 million in loans on the grounds that he could not pay. Bush argues that he avoided any conflict of interest by not voting on the issue.

A third charge involves Bush's efforts in 1986 to obtain a $900,000 line of credit for Good from Silverado.

Bush contends he complied with regulations because he disclosed the partnership with Good to Silverado officials, abstained when the board voted on the proposed line of credit, and never intended that the line of credit be drawn upon.

From the 20th-floor office of his new firm, Apex Energy Co., Bush brands the criticism as ``self-serving hype'' by regulators ``trying to cover their posteriors.''

It's a lonely stand. All the other key Silverado players have vanished. Wise, thrown out of the industry, works for a hotel magnate in Wichita, Kan. Good moved to New York, supposedly to consider the commodities business, after his Denver house was sold at public auction.

Walters lives in a $1.9 million residence in California, one of three homes listed in his wife's name.

JNB is defunct. Silverado does not exist.

Only Neil Bush is left, telling reporters, ``First of all, I didn't know that much about financial institutions . . .''