New Figures Rank Collapse of American S&L; as Costliest Ever : Banking: Regulators now say it will cost taxpayers $5.4 billion. Bass reportedly plans to sell successor American Savings.
American Savings & Loan, once the nation’s largest thrift before its 1988 collapse, now ranks as the nation’s most expensive S&L; failure, costing taxpayers $5.4 billion, or more than triple the previous official estimate, regulators said Thursday.
The Federal Deposit Insurance Corp. said the increase was caused mostly by a more detailed evaluation of loans, securities and other holdings after a complicated and controversial sale of the failed institution in December, 1988. The slumping California real estate market also added to the costs.
The revised estimate came amid reports that American Savings Bank, the successor financial institution in Irvine that was created from the ruins of the failed S&L;, is now up for sale.
Owners of American Savings Bank, an investor group led by billionaire financier Robert M. Bass in Ft. Worth, Tex., are believed to have put the financial institution on the market for $2 billion.
The government has a direct interest in any sale. Under the deal that created American Savings Bank, the FDIC holds stock rights that entitle it to 30% of any eventual sale price. What it recoups on a sale would reduce the government’s huge loss.
The revised estimate of what the failure of American Savings & Loan cost taxpayers, originally pegged at $1.7 billion, surprised even the Bass group. “That’s higher than anything we had ever heard to this point,” said Owen Blicksilver, a spokesman for Bass.
It far exceeds the $3.4 billion that taxpayers are expected to pay for the failure of Lincoln Savings & Loan. That thrift, which had been the costliest failure, failed in April, 1989, under the weight of bad investments and outright fraud by its operator, Charles H. Keating Jr.
The revised loss at American Savings & Loan could revive congressional debate over the wisdom of the December, 1988, deal that split the thrift into two entities: American Savings Bank, which held the good loans and other assets, and New West Federal Savings Bank, which held the bad loans and securities and has nearly liquidated itself.
The Bass-led group, now called Keystone Holdings Partners, had received $1.7 billion in government assistance and put in about $350 million to buy the financial institution and operate both units. The deal was roundly criticized at the time as being too costly, and regulators were criticized for failing to get more money out of Bass.
But the alternative then was to shut down American completely and suffer even greater losses. Under the revised estimate, regulators said, the loss from simply closing the institution and paying off depositors still would have been greater than entering the deal with Bass.
“This was a very troubled institution, and we didn’t have the ability then to do a lot of due diligence to determine the exact loss,” said James Meyer, an FDIC executive. “After the (Bass) acquisition was done, there were budgets and plans made and each asset was evaluated. We got to the bottom of the barrel, and the estimates got higher.”
FDIC spokesman Alan Whitney acknowledged that the agency has known for the last four years that the failure of American would cost more than $4 billion, but it didn’t release any figures before Thursday.
Meanwhile, Wall Street has long expected that Bass would eventually sell American Savings Bank. Keystone Holdings has retained two investment banking firms, Goldman Sachs & Co. and its longtime adviser, Lehman Bros., to drum up interest in its thrift.
The investment bankers approached Citicorp in New York, the nation’s largest banking company, but it declined to pursue a deal, according to a report in American Banker, an industry trade publication.
A source close to American Savings Bank said NationsBank in Charlotte, N.C., another large banking concern, is expected to send a team to the savings bank in the next few weeks to look at loans and other assets as part of a preliminary review toward possible negotiations. NationsBank and American Savings Bank refused to comment.
“Most people assumed that sooner or later, the Bass group would either seek to raise public equity or sell the bank,” said Peter Treadway, an industry analyst at Smith Barney Shearson in New York.
The Bass group could be laying the groundwork for a sale or public offering sometime next year, he said. “I think prices for thrifts will be higher a year from now in California,” Treadway said.
American Savings Bank holds $17.1 billion in loans, securities and other assets. It also has an attractive branch system throughout the state and has developed a reputation as one of the premier mortgage lenders in poor and minority neighborhoods.
Robert Bass is reportedly tired of regulatory disclosures he must make and the time it takes to oversee the investment. He wants to cash in on the thrift’s success, sources said. The time to sell may be approaching, but the organization isn’t saying when.
“The Bass organization has no timetable for holding or selling any investment,” Blicksilver said. “But from time to time, the group will look at the market and decide a course of action.”
American Savings Bank
* Headquarters: Irvine
* Chief executive: Mario Antoci
* President: Robert Barnum
* Employees: 3,500
* Major products: Real estate loans, checking and savings services
* 1993 profit: $114.6 million
Sources: Standard & Poor’s Corp., company reports
