Bank Board Rescue of Denver S&L; to Cost $1.05 Billion
Federal savings and loan regulators on Friday pledged $1.05 billion to shut down an insolvent Denver institution in one of the nation’s biggest S&L; failures.
The Federal Home Loan Bank Board, which regulates federally insured S&Ls;, created a new institution to receive $1.7 billion in deposits of the Silverado Banking, Savings & Loan Assn., which was ordered closed by Colorado regulators.
After the failed institution’s assets are liquidated, federal regulators expect to have spent slightly more than $1 billion. Silverado joins only a handful of financial institutions that have cost government insurance funds that much to close or rescue.
In the case of Silverado, the bank board’s insurance fund, the Federal Savings and Loan Insurance Corp., is pumping $200 million in cash into the new government-owned institution, Mile High Federal Savings & Loan Assn., and pledging another $624 million in a promissory note.
Starting Monday, all Silverado depositors with accounts under the insurance limit of $100,000 will be able to deposit and withdraw money as usual at Mile High.
The bank board is hiring First Nationwide Bank of San Francisco to manage Mile High. It appointed a five-member board of directors, headed by Donald F. Roby of Nevada, Mo., president of Farm Home Savings Assn.
First Nationwide Bank is owned by Ford Motor Co., which reportedly is interested in buying what is left of Silverado. According to a report in National Thrift News, a trade journal, Ford is trying to buy a group of ailing thrifts that have combined assets of more than $19 billion from FSLIC.
If Ford were to succeed in buying those S&Ls;, First Nationwide Bank would become the largest U.S. thrift. First Nationwide currently has more than $23 billion of assets and earned $91 million in pretax profits last year.
The Silverado shutdown will provide no benefits to current stockholders and managers of the S&L;, regulators said. The institution’s president, W. James Metz, controlled about 90% of the stock.
Swaps Reported
The bank board attributed the failure to “substantial dissipation of assets due to alleged violations of laws, rules and regulations.” It said Silverado had swapped some of its preferred stock for undeveloped land owned by developers.
Regulators said Silverado was losing money on many of its loans and that much of its investments were direct interests in risky commercial real estate ventures, rather than in the traditional S&L; business of home mortgage lending.
The bank board has closed, merged or otherwise “resolved” the cases of 148 insolvent S&Ls; so far this year, a post-Depression record, spending or pledging to spend about $23 billion. M. Danny Wall, bank board chairman, said last week that he hoped to have resolved 200 cases by the end of 1988.
About 400 of 3,000 S&Ls; are insolvent and estimates of the cost of the total clean-up range up to $100 billion. The Treasury Department is working on a plan for President-elect George Bush aimed at directing more money to the resolutions without adding substantially to the federal budget deficit.
One solution to the S&L; crisis has been to bring in new investors such as Ford and its First Nationwide Bank unit, which have shown interest in acquiring a number of troubled institutions.
Both Ford and FSLIC declined to comment on the National Thrift News report, which said that Ford seeks to purchase thrifts in Texas, Colorado, Michigan, Ohio and Illinois. Ford will inject $400 million to $600 million into the Colorado and Texas thrifts alone, the report said.
Tax Benefits Could Change
None of the thrifts contacted was able to confirm the trade journal’s report. According to the report, the deal hinges on Ford’s obtaining a favorable Internal Revenue Service ruling that would give it $3 billion to $4 billion in tax benefits over a 10-year period.
Bankers said the tax benefits could be much less if the deal is not completed by the end of the year because FSLIC assistance, which is currently 100% tax-free, will be only 50% tax-free next year.
National Thrift News reported that, in addition to Silverado, Ford seeks to buy the following thrifts from FSLIC:
* First Texas Savings Assn. in Dallas and Gibraltar Savings Assn. in Houston, which have combined assets of about $9 billion, plus a few other Texas thrifts. Spokesmen for these thrifts said Ford was a rumored bidder but that they had not heard anything definite.
* Cardinal Federal Savings Bank in Cleveland, with $1.5 billion of assets. Company officials were not available for comment.
* Bloomfield (Mich.) Savings & Loan Assn., with $698 million in assets, and First Dearborn in Michigan, with $200 million in assets. A First Dearborn spokesman declined to comment and Bloomfield officials could not be reached for comment.
* Pathway Financial Federal Assn. in Chicago, with $1.6 billion in assets. A company official declined to comment.
