GAO Favors Plan to Aid S&L; Buyers : * Bailouts: Controversial government proposal would tie assistance in the purchase of troubled thrifts to a share of future profits. It could have big impact in Southern California.

The head of the General Accounting Office on Thursday tentatively backed a controversial government plan that would provide aid to buyers of several big troubled thrifts, including some in California, in return for a share of future profits.

Comptroller General Charles Bowsher said the proposal by the Office of Thrift Supervision might avert the seizure and shutdown of salvageable institutions. The plan would offer purchasers guarantees against losses from troubled real estate loans and other bad assets.

“Done right, it could save big money, and it may be worth considering,” Bowsher said in testimony before the Senate Banking Committee.

The plan, known as the assisted merger program, could have a big impact in Southern California. The potential candidates for the program include CalFed and Coast Federal, both of Los Angeles, and GlenFed, based in Glendale, according to congressional sources. Another large California thrift, HomeFed in San Diego, is weaker and would have more difficulty being included in the special assistance program, sources said.

Several “very large California thrifts . . . are being watched very carefully” by federal regulators, said Bowsher, the head of the GAO, the investigative arm of Congress. The thrifts are in a sort of regulatory limbo--too strong to be included in the category of those considered certain to fail but still having insufficient capital to meet the increasingly tough federal standards, he noted.

The Southland S&Ls; have billions of dollars worth of troubled real estate loans, and federal thrift regulators are anxious to avoid direct takeovers of these institutions. If the S&Ls; were seized, the government would dump the real estate into an already glutted market hurt by falling prices for many office buildings, shopping centers and condominiums.

“We want to look for ways” to avoid “taking all these real estate assets into government (control),” Bowsher said.

But he emphasized that any rescues should be carefully and precisely selected. His advice to the regulators who would pick the candidates is: “Don’t kid yourselves. Take a hard look at the numbers.” The aid must meet the “least-cost test”--that providing money for the rescue would be less expensive to taxpayers than simply closing the S&L; and paying off depositors, he said.

The plan would allow the government to recoup its investment and more if the recapitalized institution returns to profitability. “It worked well in the Chrysler case,” when the federal government made money on Chrysler stock warrants, he said. The auto company rebounded after a federal loan guarantee enabled it to raise funds for investments and plant modernization.

The assistance plan for S&Ls; was devised by OTS Director Timothy Ryan and will be considered next month at a hearing of the Oversight Board of the Resolution Trust Corp., the agency handling the disposition of failed S&Ls.; The RTC would provide the funding for any assisted mergers.

Many members of Congress are skeptical about the plan because it would put the government in the position of selecting which S&Ls; would be kept alive and thus which shareholders’ investments protected, after hundreds of thrifts have been wiped out.

“There are going to be fairness issues raised,” said Sen. Bob Graham (D-Fla.), a member of the committee. “There will be a heavy focus (on) the impartiality issue.”

There is also fear that an assisted thrift might later fail, thus increasing the cost of the collapse to taxpayers. That happened in some bailouts of failed thrifts in Texas.