Out-of-Business Sale at Gibraltar Not Yet in Sight : Thrifts: Critics say delays by federal regulators in selling the S&L;, seized a year ago, are eroding its value.
If there was a right-to-die law for thrifts, Gibraltar Savings might be the first to use it.
The Simi Valley savings and loan was seized by regulators a year ago this month. It was revamped to stem the flow of red ink. Its risky securities were sold. In the eyes of the executives who run Gibraltar for the government, it could be sold tomorrow. For all practical purposes, the last rites for Gilbraltar as an independent thrift could then be observed.
Yet Gibraltar’s future seems as cloudy today as it was last March 31, the day it was seized. Optimism that Gibraltar might be sold quickly has ended. And interest among buyers has waned.
“You don’t even hear it discussed anymore,” said a top executive with an institution that was once very interested in acquiring Gibraltar.
Even the executives who run Gibraltar and their employees, whose careers hinge on the sale, say they are being kept in the dark. Any talk of selling Gibraltar, they say, is done in Washington, not Simi Valley.
“My biggest fear is that I’ll read about it in the newspaper,” said Chief Executive James R. Boyle.
So what happened?
The problems of selling Gibraltar reflect the enormous problems that the federal government is having trying to clean up the nation’s S&L; fiasco--a debacle expected to cost taxpayers $200 billion and possibly more the longer the bailout job is delayed.
For one thing, many other seized thrifts and branches are becoming available for sale, creating a buyer’s market. Tough new savings and loan regulations have changed the playing rules for thrifts, eliminating many prospective buyers and forcing even some of the most healthy institutions to focus on shrinking rather than expanding to meet new financial standards designed to protect taxpayers against further losses.
Money, needed to put together bailout packages, has been scarce, as Congress has been tight with its purse strings. The real estate market has softened nationwide, making prospective investors nervous about buying thrifts loaded with real estate assets that may have to be sold at fire-sale prices. And buying Gibraltar would be a big gulp for all but the largest institutions or investment groups.
But critics point to other problems that might have been avoided. For one, the overall mechanism to close and sell sick thrifts is ponderous, discouraging prospective bidders. Some thrifts received multiple bids, but the government rejected all offers as inadequate. In addition, regulators rescinded some key provisions for investors who bought thrifts in 1988, which prospective buyers say has made them wary of doing business with the government.
Another criticism is that coordinating sales from Washington is inefficient. Why not give authority to sell a thrift, critics ask, to the executives who run it and know it best? And some say Washington bureaucrats are gun-shy about selling large thrifts such as Gibraltar because they have been criticized for giving away too much to buyers in past deals.
Gibraltar is no small operation, and taxpayers have much at stake. With $8 billion in assets, it remains one of the five largest thrifts operating under supervision of the Resolution Trust Corp., the federal agency set up last summer to sell thrifts and their assets. And although its management has stopped Gibraltar’s hemorrhaging, the thrift is still losing about $9 million a month. In last year’s second quarter, alone, the thrift’s California and Washington operations lost $337.5 million.
Criticism of the slow pace at which sales of thrifts such as Gibraltar are taking place is growing louder in Congress. What once looked like one of the first major victories for the Bush Administration is turning into a fiasco.
James R. Barth, former chief economist with the federal Office of Thrift Supervision and now a finance professor at Auburn University, believes that RTC officials deserve criticism. “Their entire mission in life is to take institutions and close them or sell them,” Barth said. “The RTC can only be judged by the number of deals it does.”
Federal Deposit Insurance Corp. Chairman L. William Seidman, who doubles as chairman of the RTC, defends it. In an interview, he said the 7-month-old agency has pulled itself together in a remarkably short period of time, given its massive task.
“Just because some congressman gets up and says the pace is glacial doesn’t mean that it’s true,” Seidman said.
The RTC has recently liberalized its rules as an incentive to bidders. For example, it relaxed the rules that limited thrift buyers from being able to give back bad assets that they don’t want. Seidman said further changes may be coming, such as allowing executives running thrifts for the government to play a more active role in marketing them.
Caught up in the debate are institutions such as Gibraltar that are waiting to effectively go out of business. With a thrift the size of Gibraltar, the concern is that the longer it takes to sell, the less it will be worth and the more taxpayers will shell out.
“It was a valuable franchise and the value of it is melting down,” said Richard T. Pratt, a Merrill Lynch executive who formerly supervised S&Ls; as head of the Federal Home Loan Bank Board, now the Office of Thrift Supervision.
Gibraltar was taken over last year after regulators became concerned that it was being run in an unsafe manner, largely because the value of more than $4 billion in its mortgage-backed securities--packages of home loans in which mortgage payments flow to the holders--had deteriorated.
The management of its former parent firm, Gibraltar Financial Corp. in Beverly Hills, disagreed and sued the government, contending that the thrift never should have been taken over because it was still solvent. Regulators countered that it was solvent only on paper and that its true losses wiped out any financial cushion it had that protected against losses.
Initially, there was plenty of interest in buying Gibraltar. The thrift’s 108 branches, some 80% in California with others in Washington and Florida, would be attractive to any number of institutions.
Last summer and fall, according to various sources, 11 institutions took a look.
Five are thrifts: Great Western Bank, Coast Savings, First Nationwide Bank, American Savings Bank and Citicorp Savings. Two, Wells Fargo and Security Pacific, are banks.
Three investment firms also looked at the books: America First Financial in San Francisco, the giant New York buyout firm of Kohlberg Kravis Roberts & Co., and a group led by former Treasury Secretary William E. Simon. One prospective buyer was foreign, Royal Trustco of Toronto.
American Savings officials said they were interested in some pieces, but not the whole thing. Many thrift executives believe that selling all of Gibraltar is wishful thinking.
RTC officials won’t discuss Gibraltar specifically, and point only to vague guidelines that they must follow when asked how long it might take before a sale. Those guidelines are to sell thrifts that are bleeding the most, minimize the risk to taxpayers, try to preserve the value of the S&Ls;’ “franchises” and use their staffs effectively.
In addition to Boyle, the other main executive running Gibraltar is Laurence Schannault, managing agent for the RTC. As an indication of how thin the RTC is stretched, Schannault is also serving as managing agent for two other seized thrifts, Imperial Savings in San Diego and Pacific Savings & Loan in San Francisco.
Gibraltar executives argue that they are working hard to preserve Gibraltar’s value, because long-term customers are staying with the thrift and 80% of its certificates of deposit are renewed. The executives also contend that there is still plenty of value, namely customers that are demographically desirable to other institutions, a new computer system and income from servicing mortgages.
Still, they acknowledge, it has been hard to compete while the thrift is in limbo. Although Gibraltar offers savings accounts, for example, it cannot write new home loans.
It also is hard to keep employees because of the uncertainty. New employees are hired but warned that their jobs could end if a buyer is found. Major spending is on hold.
Progress is being made, and losses are shrinking. Last Thursday, Gibraltar’s biggest problem asset was wiped off the books when its officials sold the Hyatt Grand Champions Resort in Indian Wells for $65 million to the Japanese real estate firm Maruko Inc. The hotel was one of the largest assets listed for sale by the RTC.
But despite the progress, Gibraltar appears no closer to being sold than it did last year. The thrift has yet to be advertised for sale, one of the first steps that must be taken.
The best guess from various experts is that the minimum time it would take to sell Gibraltar--assuming that the government decided today to sell it as quickly as possible--is six months to a year.
