FHLBB Rescue Plan Would Cut Number of S&Ls; in Texas by One-Third

A federal plan to restructure the crippled Texas savings and loan industry would cut the number of thrifts in the state by one-third, regulators said Wednesday.

Consolidating thrift institutions and attracting new capital are the two key goals of the Southwest Plan, developed by Federal Home Loan Bank Board officials after two months of analysis.

“Consolidation works. We arrived at this conclusion after extensive analysis,” said M. Danny Wall, chairman of the bank board. “So now what we find ourselves doing is saying to the industry and the prospective investors: ‘You all come. You all come and make your proposals to us.’ ”

The goal is to blend the 104 insolvent thrifts and 39 ailing institutions with some of the solvent, well-run operations and reduce the overall number of S&Ls; in Texas to 180 or 160 from 281, Wall said. About 70% of the ailing thrifts have signed consent-to-merge agreements, he said.

But that means attracting investors willing to invest money in an industry that has been on its knees for the past several years because of downturns in the oil and real estate markets.

The thrift problems in Texas represent about one-half of the S&L; problems nationwide, the bank board chairman said.

Rising foreclosures, cases of fraud and mismanagement and a glut of vacant office space contributed to a loss of more than $5 billion for the state’s savings industry in 1987.

“During the more than two months we worked to develop the plan, we received expressions of interest from investors who indicated a desire to bring in more than $1 billion in new capital,” Wall said.

The costs of eliminating the negative net worth of the insolvent thrifts in Texas are in the $6-billion to $7-billion range. Other costs include $2 billion to compensate the consolidated S&Ls; for accepting low-yield loans in their portfolio.

Funds to cover these costs will come from last year’s $10.8-billion recapitalization of the Federal Savings and Loan Insurance Corp.--the fund that insures S&L; deposits up to $100,000--and from expected investors.

Wall said the bank board will use agency notes rather than cash when possible. The agency also plans to reap its share of profits from consolidated institutions and take an equity position in them to recoup investments.

The plan was endorsed by the U.S. League of Savings Institutions, the industry’s largest trade group. “We commend the Federal Home Loan Bank Board,” U.S. League official Theo Pitt said in a statement.

Creators of the plan envision Texas broken into 14 market regions with some S&Ls; overlapping regions, others covering an entire region and a majority operating in a portion of a region.

“We estimate that as a percentage of total Texas thrifts, the number of smaller institutions will actually grow,” Wall said.

“Those with less than $500 million assets would account for approximately 80% of all Texas thrifts. Those with $500 million to $1 billion in size would be 6% while those of $1 billion or more would account for less than 15%.”

One facet of the plan is to lower the percentage rates currently being offered by failing S&Ls; desperate for cash, a practice that forces competing institutions to keep their rates artificially high as well.

“If we reduce the cost of funds there, we ought to be able to boost the profits of institutions throughout the country,” Wall said.

“A major problem in Texas has been that there are just too many thrifts and too many branches. As a result, many institutions have seen their profits hurt by high operating costs caused by inefficiencies,” he added.