RESCUING THE S&Ls; : Two Huge Bailouts : Tab Reaches $6.8 Billion for Plan to Save 5 Texas Thrifts and American
The years-long tale of woe at American Savings & Loan Assn. finally came to an end Wednesday as federal regulators completed a $1.7-billion rescue package for the Stockton thrift. Meanwhile, regulators formally unveiled a $5.1-billion plan to salvage five more failing S&Ls; in Texas.
Robert M. Bass, a 40-year-old billionaire and corporate buyout specialist from Ft. Worth, is the new owner of American Savings as part of a bailout that took more than eight months to negotiate with the Federal Home Loan Bank Board.
Bass and other investors have put up $350 million--$200 million less than previously agreed to--in cash as new capital for American Savings. The publicity-shy Bass, citing family commitments, skipped the press conference at which the sale was announced.
In Texas, investors including corporate takeover specialist Ronald O. Perelman, head of MacAndrews & Forbes Holding, have put up $315 million in new capital to take over five failing thrifts whose assets total $12.2 billion. The biggest ones are Houston-based Gibraltar Savings Assn. and Dallas-based First Texas Savings Assn., whose assets total $9.6 billion. (The Houston thrift is not related to Gibraltar Savings of Beverly Hills.)
The latest actions bring to 181 the number of failing thrifts that have been rescued, reorganized or liquidated so far in 1988 by the bank board and its insurance arm, the Federal Savings and Loan Insurance Corp. Another 20 rescues are expected by year-end, regulators say.
“Two large deals like this are part of our goal to stop the industry hemorrhaging in Texas and throughout the rest of the country,” Karl Hoyle, chief spokesman for the bank board, said. “Both together represent more than two years of work between them.”
Hoyle said FSLIC has now committed nearly $34 billion in cash and notes to rescue failed savings and loans, with most of that financial assistance pledged during the 1988 frenzy of activity. FSLIC absorbs the losses in these rescues because it agrees to subsidize red ink on defaulted loans and money-losing assets until the assets are sold, a period that can take 10 years or more.
The American Savings sale qualifies as the single largest thrift ever rescued by the bank board. With $30.1 billion in assets, American Savings is the country’s second-largest thrift after Home Savings of America.
The Texas rescue, meanwhile, qualifies as the second-most expensive bailout package undertaken by the bank board, behind a $5.5-billion rescue and reorganization last summer of Dallas-based Sunbelt Savings and seven other failed thrifts.
The latest rescues were announced at a press conference here called by M. Danny Wall, bank board chairman. The Bass sale was approved Tuesday night, while the Texas deal was completed early Wednesday morning.
The Bass sale, which capped negotiations that began in April, effectively marks a new beginning for American Savings, which has been buffeted by severe financial turmoil in recent times. Since mid-1984, American Savings sustained more than $1 billion in losses and endured several deposit runs.
“Today’s events . . . mark the end of a difficult time for those closest to American Savings,” Bass aide Bernard J. Carl said in a statement. “The uncertain future and the negative publicity of the last few years have taken their toll--particularly on American’s most steadfastly loyal employees. But those times are over.”
Carl also issued this warning to American Savings’ competitors in California: “Be warned--American Savings is back. Look for us to be tough and aggressive competitors, but expect us to be a responsible member of what is now our industry.”
Open for Business
The Bass sale should be welcome news to American Savings’ 1 million depositors, many of whom have watched nervously as their thrift’s financial condition deteriorated. More than $1 billion in deposits fled American Savings earlier this year amid a steady drumbeat of bad news about the company’s financial condition.
Officials at the bank board said American Savings’ 187 retail branch offices and 23 loan offices throughout California are open for business as usual. “Service to all customers will be uninterrupted,” the bank board said in a statement. At the heart of the American Savings rescue is an arrangement to divide the financial institution into two separate savings and loans, both controlled by Bass through a holding company known as New American Holdings.
A so-called good bank--known officially as American Savings Bank instead of American Savings & Loan--has inherited the healthy loans, $14 billion in stable deposits and the retail branch network.
A so-called bad bank, known as New West Federal Savings & Loan, has inherited American Savings’ problems, including more than $5 billion in troubled real estate development loans and assets and about $15 billion in money-losing mortgage-backed securities. It is New West’s job to arrange the liquidation of these assets over time, but the speed of the selloff depends largely on what happens to interest rates. New West will have no branch network and will make no home loans.
The mortgage-backed securities, whose value drops as interest rates rise, would generate losses of about $1 billion if sold at today’s prices, bank board officials estimate. However, if rates drop in the months and years ahead, the securities may eventually be liquidated at a profit.
American Savings’ problem development loans, made mainly on office buildings and condominiums in California and Texas, will be managed and gradually sold off through an existing organization known as the American Real Estate Group, headed by Merrill Butler.
Other Large Shareholders
Bass, in addition to the $350 million already put into American Savings, has pledged to raise another $150 million in capital within the next three years. An earlier agreement requiring $550 million in capital was modified after Bass agreed to scale back the scope of American Savings’ investments and sharply modify a plan to make corporate acquisitions.
According to Carl, the Bass investors raised $150 million on their own, while $250 million was raised by selling bonds to unidentified investors. Of that $400 million amount, $350 million was used to capitalize American Savings and the other $50 million went to the new holding company.
Though Bass is the majority shareholder of the new financial institution, other large shareholders include Carl and David Bonderman, another key Bass aide. Mario J. Antoci, American Savings’ new chief executive, will own a maximum of 3% of the company, Carl said.
To facilitate the sale, FSLIC has pledged a 10-year cash assistance package now valued at $1.7 billion. The assistance will cushion losses on the operation and eventual sale of American Savings’ problem assets, which now total more than $20 billion.
Other terms of the deal give FSLIC warrants to buy a 30% interest in American Savings Bank and a 75% interest in the hefty tax benefits that are expected to accrue from the sale. The FSLIC assistance is tax free and American Savings has accumulated well over $1 billion in tax credits and deductions that may be applied against future earnings.
But, bank board officials say, the value of the assistance package could grow more than 50% if American Savings does not make money under Bass. That’s because no profit means FSLIC will get less value for the warrants and tax credits.
In Texas, the five bailed-out thrifts opened for business Wednesday under the name of First Texas Bank, with more than 130 branches statewide. One of the first cost-saving moves will be to close some three dozen of those branches, Wall said.
The $5.1-billion assistance for the Texas sale includes a 10-year note for $866 million and the rest in cash provided over the next 10 years to subsidize and sell off problem loans. Wall noted that the thrifts have more than $1 billion in land loans whose value has been written off entirely.
Still, the cost of the rescue stunned some outsiders. “It really surprises me,” said thrift industry consultant Bert Ely. “I had been expecting a $2.5-billion cost and it came out twice that high.”
The rescue of the five thrifts is part of a continuing federal regulatory effort, known as the Southwest Plan, to close or merge scores of insolvent thrifts in states such as Texas and Louisiana.
Many thrifts in that region have failed amid a real estate bust caused by plunging crude-oil prices. Thrifts in Texas sustained staggering losses on real estate development projects that were devised on the assumption or rising oil prices. In some cases, lenders ended up owning raw land that is now nearly worthless.
Savvy investors like Bass and Perelman now see opportunities as they shop for bargain-basement deals. By raising modest amounts of capital, they are finding that they can take over a huge sum of assets at minium risk.
As evidence of that, the competition in Texas for failed thrifts has been heating up markedly in recent months. Perelman and his investors won out over several other interested buyers, including Ford Motor, Columbia Savings & Loan in Beverly Hills and World Savings & Loan in Oakland.
BIGGEST RESCUES
The biggest government bailout packages to date in terms of estimated costs to the Federal Home Loan Bank Board and its insurance arm, the Federal Savings and Loan Insurance Corp.:
$5.5 billion pledged Aug. 19 to merge eight insolvent Texas savings and loans into a new institution called Sunbelt Savings FSB.
$5.1 billion pledged Wednesday to merge five insolvent Texas S&Ls; into a new institution called First Texas Bank FSB.
$2 billion pledged May 18 for four insolvent Texas institutions to be acquired by Southwest Savings Assn. of Dallas.
$1.7 billion pledged Wednesday for American Savings of Stockton, the largest single insolvent S&L;, to be acquired by a group headed by Texas billionaire Robert M. Bass.
$1.3 billion pledged Aug. 18 for Gibson Group-LSST Financial Services, headed by a Chicago banker and backed by a Texas steel company, to acquire 12 insolvent savings institutions.
Source: Associated Press
