U.S. May Ease New Rules for Healthy S&Ls; : Billions in ‘Goodwill’ to Count as Capitalization

Savings and loan associations, struggling to meet tough new capital standards by 1991, will be allowed to count much of the $20 billion in “goodwill” already on their books, congressional sources said Thursday.

The Bush Administration, seeking to ease the burden of the new standards on healthy S&Ls; that are striving to stay in business, has indicated that it will accept goodwill as part of its calculation of S&L; capital reserves, the sources said.

If goodwill--the monetary value assigned to the name, locations and traditions of a business--is counted, healthy S&Ls; would need to raise $14 billion in new capital to reach the standards that will take effect in 1991.

This is a daunting task for a business already under economic and political pressures. Without goodwill, however, the industry would need $34 billion, a figure that industry officials say would be impossible to raise.

Good Will in Congress

President Bush, as part of his plan to rescue depositors at insolvent, federally insured savings institutions, proposed last week that S&Ls; be required to maintain cash reserves equal to 6% of their assets as of 1991, up from 3% today. His purpose was to enhance the soundness of surviving thrift institutions.

Congressional sources said they have received general assurances that the Administration will accept legislative amendments recognizing the value of goodwill for currently healthy S&Ls.;

The Administration denied making a specific promise.

“We have not made any commitment on that,” a Treasury spokesman said Thursday. “It is something for the regulators to sort out.”

But the congressional sources said Administration officials have expressed strong sympathy and concern for healthy S&Ls; during private meetings with congressional staff members. The officials “recognize the capital requirements are unrealistic for a lot of institutions,” one congressional aide said.

“Many S&Ls; have so much goodwill on their books,” this aide said. “The Treasury is willing to ‘grandfather’ the S&Ls;, to count the goodwill toward capital.”

A regulatory official, informed of the development, said: “This would relieve a good part of the burden on the healthy institutions.”

Under the Bush Administration legislative package, the capital requirement for S&Ls; as of 1991 will be the same one that will apply to banks. Banks cannot now include goodwill in their computation of their capital reserves.

There are approximately 3,100 S&Ls; nationwide, of which about 600 are either insolvent or perilously close. The remaining 2,500 institutions could attempt to remain open if they can meet the 1991 standards.

These 2,500 institutions now have capital of $57.3 billion, including the $20 billion attributed to goodwill.

They’re Not Lining Up

Under the 6% rule, these institutions would need to raise their capital to $71 billion as of 1991, an increase of $14 billion. Without counting goodwill, the S&Ls;’ capital would be just $37.3 billion, and they would need to seek a massive $34 billion in new money.

“There is not a very long line of people waiting to put money into S&Ls;,” one congressional source said. “The job of raising money won’t be quite as formidable if you can count goodwill.”

Today’s healthy S&Ls; have increased their goodwill in recent years as they have acquired weak ones--along with their goodwill. “A lot of big institutions did acquisitions, encouraged by the federal regulators,” an industry official said.

Those acquisitions, by strengthening the industry, worked in the interest of federal regulators. The industry says the regulators should reward the healthy S&Ls; by letting them count their goodwill toward their capital requirements.

Rep. Jim Leach (R-Iowa), a House Banking Committee member who has been strongly critical of the industry, said there are “some compromises that can be achieved.” He mentioned phasing out the inclusion of goodwill over time or including only a percentage of goodwill toward meeting the capital standard.

“One of the great scandals is the weak capitalization of the thrift industry,” Leach said.