S&Ls;: Decision Means They’re ‘Holding the Bag’

Leaders at some of the county’s larger savings and loans reacted angrily Thursday to news that federal regulators will extend for three more years a special assessment on healthy institutions to pay for the cleanup of hundreds of failing S & Ls nationwide.

“We seem to be left holding the bag,” said Charles H. Greene, chief financial officer of Far West Savings in Newport Beach. “It’s absolutely a burden for healthy institutions. We didn’t have our hands in the cookie jar, but we have to pay for those who did.”

The decision to extend the special assessment beyond its 1995 expiration date was revealed Thursday in congressional testimony by M. Danny Wall, chairman of the Federal Home Loan Bank Board, the regulatory agency that also oversees the Federal Savings & Loan Insurance Corp. At the same time, Wall estimated that the cost to close or merge failing thrifts will rise to $30.9 billion in the next 10 years.

The beleaguered FSLIC, straining to build up its depleted fund that insures deposits up to $100,000 per account, would get $42.5 billion in the next decade by extending the special assessment, Wall told a House committee Thursday.

Industry leaders did little but grumble a few years ago when thrifts were charged a special assessment of 1/8th of 1% of their deposits to bolster the FSLIC fund. In the past year, however, the leaders of healthy S & Ls have become increasingly outspoken about their opposition to the special assessment.

The special assessment fee is not insubstantial. Downey Savings, for instance, pays $4 million a year because of it, said Maurice L. McAlister, the S & L’s president.

“I don’t like it (the extension), but there’s nothing I can do about it,” McAlister said. “What I dislike the most is that we have no control over what these (insolvent) S & Ls do, but we have to pay for their losses.”

When the FSLIC won its recapitalization bill in Congress last year, the industry believed it would get help in at least reducing the amount healthy S & Ls would have to pay under the special assessment, said Fredric J. Forster, president of Newport Balboa Savings in Newport Beach.

Wall’s decision to extend the special fees upset Forster.

“Someone’s not delivering the goods here,” he said.

The effort to make the industry pay for the losses at 511 insolvent U.S. thrifts may not work, some of the executives said.

“I’m not sure the taxpayer is going to be able to duck this,” said Greene of Far West Savings. “I think the taxpayers--you and me and everybody else--will pay for the losses ultimately.”

Executives such as Stephen W. Prough, president of Western Financial Savings Bank, believe taxpayers are already paying for the losses because the increased cost of doing business--the special assessment--is being passed on to consumers with higher interest rates for loans or lower interest rates on deposits.

“In my opinion, it’s a national problem, not just an S & L problem,” Prough said.

The executives, as well as two industry consultants, acknowledged that Wall has few choices. There is little else he can do to raise funds without going to taxpayers, said Salvatore Serrantino, a Santa Monica industry consultant.

Main story, Part I, Page 1.