FDIC to Sell Shaky Loans at Auction
The Federal Deposit Insurance Corp. will try a new approach--a public auction--to sell more than $75 million in shaky loans that it acquired in its 1984 bailout of the Continental Illinois National Bank & Trust Co., officials said Monday.
Parties ranging from other financial institutions to collection agencies and “vulture funds” are likely to join in the bidding Oct. 20, according Joel D. Zegart, president of JBS & Associates Inc., which will conduct the auction in a ballroom at a downtown hotel.
The loans, which include commercial, real estate, energy and personal loans, are among $5.2 billion in Continental Bank loans that FDIC purchased for $3.5 billion as part of its $4.5-billion plan to save the bank from failure.
Continental, acting as FDIC’s administrator, has collected on or disposed of problem loans with a face value of more than $3.7 billion since the federal rescue, said Jerry Lemmons, a member of the bank team in charge of the effort.
FDIC will assume sole responsibility for disposing of loans not sold or collected on by Nov. 1, Lemmons said.
‘Sense of Confirmation’
Chicago-based JBS pioneered the auction approach to loan sales, holding the first such event last October, when it generated about $2.7 million from the sale of $8 million worth of loans made by two failed central Illinois banks, Zegart said.
FDIC and Continental opted for the public auction route after a failed offering of $1.2 billion worth of the problem loans. None of the sealed bids received for that package met the minimum price set by the agency.
“The biggest advantage is that (the public auction) provides a sense of confirmation for buyers,” Zegart said. “It provides an opportunity for them to be in an open forum and see how their peer group values certain assets.”
Prices paid at similar, though smaller, JBS loan auctions ranged from a penny per dollar of face value for the most hopelessly uncollectible loans to 95 cents on the dollar, he said.
The worst-case loans, called “charge-off” loans because they are regarded by the seller as not worth the cost of collecting, typically are purchased for pennies on the dollar.
