American S&L; to Be Taken Over : Texans to Pay $550 Million, U.S. Pledges $2 Billion in Rescue Effort
After marathon negotiations, federal regulators announced Monday that the Robert M. Bass Group of Ft. Worth has agreed to spend $550 million to take over the ailing American Savings & Loan Assn., the nation’s second-largest S&L.;
As an incentive to get the infusion of new capital from the Bass group, federal regulators developed a $2-billion package of assistance for American Savings, including a $500-million note. In return for its contribution, the Federal Savings and Loan Insurance Corp., the agency that protects deposits, will receive a 30% ownership share in the revived S&L.;
The announcement by the Federal Home Loan Bank Board stopped short of a final agreement, pointing out that a few tax and state regulatory issues need to be resolved. And the proposed sale is likely to receive intense scrutiny from Congress and has already sparked hard questions from key lawmakers about terms of the agreement and the circumstances under which it was negotiated. But if the deal does go through, federal regulators for the first time will have a major stake in one of the S&L; industry’s giants.
Five-Year Battle
The proposed sale winds up nearly five years of frustration and uncertainty over the future of American Savings, which since 1984 has been a virtual ward of the federal government. As repeated runs on deposits and a mounting load of soured loans brought one of the nation’s largest financial institutions to the brink of failure, regulators were forced to keep it alive because they lacked the financial resources to pay off depositors and shut it down.
Stockton will remain the headquarters of American Savings, a mammoth institution with $30 billion in assets and 185 branches throughout California. The offices of American Savings “will continue to operate as usual and . . . the same rates and terms on deposits will remain in effect,” the bank board said.
The prospective new owners, headed by Texas billionaire Robert Bass, have not indicated whether they have any cost-cutting plans that might include shutting branches or dismissing workers. Spokesmen for Bass declined comment on the announcement.
M. Danny Wall, bank board chairman, said an announcement would be made today as to what will happen to shareholders, who have seen their equity completely disappear in the last year.
American is the biggest single insolvent thrift institution on the bank board’s long list of ailing S&Ls;, and the regulators have been particularly anxious to find a buyer. The only other alternative, shutting down the institution and paying off depositors, would have wiped out the federal fund that insures deposits up to $100,000.
“Obviously, we are pleased that our largest single insolvent thrift will be successfully resolved through acquisitions,” Wall said Monday after the intense and arduous bargaining that extended beyond the Sept. 1 deadline for concluding the deal.
In an interview here, Wall described the key advantages of the proposed sale as the addition of $550 million of new capital into the industry and the preservation of American Savings as a competitor in the California market. It will also make a savvy investor like Bass a major player in the savings and loan industry, Wall added.
It’s a Partnership
“Given the course and nature of the agreement, we are going into partnership with Robert M. Bass,” Wall said. “We feel very good about it. He’s an impressive young fellow.”
Wall added he does not believe the questions raised on Capitol Hill will imperil the planned sale. “We’re confident the agreement will stand up to full scrutiny,” Wall said. “Clearly, there will be a lot of questions. I don’t want to be cavalier about that.”
One likely criticism is that Ford Motor Co. was reportedly willing to ante up $1 billion in new capital, nearly twice what Bass is offering. But Wall disputed that figure, saying “that’s not the case. There was not $1 billion as far as Ford was concerned on this deal.”
The bank board chairman is also preparing a letter answering questions raised by Sen. Donald W. Riegle Jr. (D-Mich.) about the propriety of certain terms of the sale. Among other things, Riegle questioned the wisdom of allowing Bass to establish a merchant banking subsidiary to fund his corporate acquisition activities.
Ford, which negotiated unsuccessfully with the bank board last year to buy American S&L;, has been insisting that it is still interested in bidding for the S&L.; And influential members of Congress recently expressed concern about the regulators’ discussions with Bass at the exclusion of all other bidders.
Hard Questions Expected
At a House Banking Committee hearing this Thursday, Wall will be questioned closely about the terms of the deal.
Wall and his colleagues maintain that they had no serious offers other than the Bass proposal. “We began negotiating with the Bass people on an exclusive basis because their formal offer was the best we had at the time,” said Roger F. Martin, a member of the bank board. “I am confident that our agreement based on that offer will stand up to any scrutiny.”
The bank board has been talking exclusively with the Bass group since April 21 and passed several of its self-imposed deadlines before Sept. 1. The regulators felt strong pressures to close the deal. If talks had collapsed, and the Bass group had walked away, as Ford did last year, there could well have been a wave of anxiety among depositors, who might quickly withdraw billions of dollars from American Savings.
The determination of the regulators to get American off their sick list, combined with the Bass group’s desire to get into the S&L; business made the deal possible.
“These have been long and exhaustive negotiations, and there were times when it appeared we might have reached an impasse,” said Stuart D. Root, executive director of FSLIC. “However, we were always able to work out the problem and continue on toward an equitable agreement.”
The acquisition agreement still needs approval of various tax benefits by the Internal Revenue Service and acceptance of the deal by California regulators.
American’s parent firm, Financial Corp. of America, based in Irvine, Calif., is the nation’s second-largest S&L; holding company, ranking behind H. F. Ahmanson & Co. of Los Angeles.
Intervened in 1984
Regulators intervened at American Savings in 1984 during a $6.8-billion loss of deposits in just three months. The financial hemorrhage coincided with a report by the Securities and Exchange Commission that some investments were being classified incorrectly on the S&L;’s financial statements.
American lost an additional $1.6 billion in deposits through the first seven months of 1988. To soothe customers, regulators promised to safeguard all deposits, even those in excess of FSLIC’s $100,000 limit. And general creditors have been assured that their interests would also be protected.
The bank board has committed $12.2 billion in aid since mid-August to rescue nearly four dozen institutions in Texas, California, Oklahoma, Minnesota, Florida, Iowa, Idaho and Tennessee. The bank board this year has resolved the cases of 96 insolvent institutions, in which liabilities exceed assets.
The deal to sell American Savings may finally conclude the long-running saga of banking regulators’lacking the financial resources to pull the plug on a dying thrift institution. Stories in Business.
