Dealing With Troubled Thrifts

In her column “A Most Wasteful Approach on Thrifts” (California Commentary, Feb. 12) thrift consultant Charlotte Chamberlain contended that inept thrift regulators are sabotaging the value of thrift assets that must eventually be sold by another government agency, the Resolution Trust Corp. Chamberlain complains that, by banning further lending at a number of capital-impaired S&Ls;, the Office of Thrift Supervision will only assure that the value of their lending franchises is eliminated, thereby decreasing the value of the institutions and increasing the eventual cost to the taxpayers.

I wish the assumptions Chamberlain makes about the value of lending networks among non-viable thrifts were correct. Sadly, they are not. It is seldom possible to make them attractive to acquirers on the basis of their “franchise value.” Very few investors are eager to pay a premium for a loan-generating mechanism that can easily be duplicated.

Not only has the government been unsuccessful in realizing the alleged value of lending networks among troubles S&Ls;, but so have the managements of those institutions. In virtually every S&L; taken over by the government, management has previously attempted to sell the institution. But neither pricey investment bankers nor the assumed value of a retail lending network has been sufficient to entice a buyer.

While there are isolated cases that warrant an exception from the “no new loans” policy, generally the value of maintaining a lending franchise at a non-viable thrift is very speculative. The cost of maintaining the lending franchise, on the other hand, is very real. The cost of maintaining lending and associated personnel at non-viable institutions over a several-year period is likely to exceed by a wide margin the value that ultimately may be realized when the company is sold or liquidated.

MICHAEL PATRIARCA

District Director, Office of

Thrift Supervision, San Francisco