Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 11, 1990 TAG: 9003112699
SECTION: NATIONAL/INTERNATIONAL PAGE: A1 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Long
More than 500 insolvent or near-insolvent S&Ls are open for business, losing an estimated $14 million a day.
Beleaguered regulators hint that the administration's bailout probably won't be enough.
What was thought to be a crisis resolved is once again becoming a political liability for the president.
The answer is: both. The savings and loan crisis is back.
That was the situation in the waning days of the Reagan administration in 1988 and that is the situation now, six months after President Bush signed historic S&L legislation in a Rose Garden ceremony declaring, "These problems will never happen again."
Two years before, President Reagan had expressed similar sentiments when signing a $10.8 billion, industry-funded rescue of the S&L insurance fund. As it turned out, that fell far short of the amount needed. Now it's becoming clear the $50 billion provided by the Bush bill won't be enough either.
Bush got high marks from thrift executives, editorial writers and even Democrats for offering a comprehensive plan to handle the S&L crisis within three weeks of taking office, and pushing it through Congress by August.
So far, he is getting low marks on execution of the plan.
Congressional Democrats, who had been somewhat muted because of the involvement of four Democratic senators in the Lincoln S&L scandal, are criticizing the administration more forcefully.
"Savings and loans have re-emerged as a political problem. The Democrats are back and the name of the game is assessing blame," said Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America.
The Resolution Trust Corp., a new bailout agency run by the Federal Deposit Insurance Corp., has moved swiftly to put failed thrifts under government management. By the end of February it had seized 382 institutions with $192 billion in assets.
But it has moved slowly in disposing of the institutions, selling or closing only 49, mostly smaller thrifts. It has sold or collected on about $25 billion in assets, but it's had a tough time getting rid of problem real estate and sour loans.
"What we have is a bunch of rotting S&Ls out there and a bunch of assets being managed in a passive way," said Bert Ely, a financial analyst in Alexandria, Va.
"The longer the delay, the more costly the cleanup."
After recent appearances before hostile members of Congress, administration officials promised to double the resolution pace to 50 S&Ls a quarter.
To speed real estate sales, the Resolution Trust Corp. released a 3,000-page inventory of 30,000 properties. Anyone interested can obtain the list for $50 by calling 1-800-431-0600.
In the meantime, analysts, congressional critics and bailout officials themselves offer at least three reasons for the slow start.
First, the sheer size of the task is unprecedented. Never before has the government tried to sell so much to so many.
"What's happened in a nutshell is that Congress has set up an organization, overnight, with responsibilities larger than Citicorp," the nation's largest bank, said Rep. Jim Leach, R-Iowa, a member of the House Banking Committee.
Second, the cumbersome structure of the bailout apparatus, designed to ensure the taxpayer's money is spent properly, is prone to delay.
An existing agency, the FDIC, supervises the work. But another layer of administration, the RTC Oversight Board, controls the purse strings and policy of the bailout. It's led by the Treasury secretary and includes the Housing secretary and Federal Reserve Board chairman.
Congressional Democrats also are upset because the White House has not filled many positions in the regulatory bureaucracy.
Most notably, the administration still has not appointed a permanent replacement for M. Danny Wall as director of the Treasury Department's Office of Thrift Supervision. The Treasury Department is recommending T. Timothy Ryan Jr., formerly the Labor Department's chief attorney, but it could be weeks before he clears the standard background checks.
A third factor in the lackluster start was uncertainty over bailout funding. Beyond the $50 billion provided by last summer's bill, Resolution Trust Corp. officials temporarily need much more money until they can sell the assets of the failed S&Ls.
The administration did not approve such "working capital" until late February, only weeks before the corporation would have had to stop work for lack of cash.
It is borrowing the money through the Treasury after Democrats on the House Ways and Means Committee blocked the administration's plan to exclude the borrowing from the federal budget deficit.
Another funding crisis looms. Private analysts complain the government, even with working capital, must spend far more than $50 billion to cover failed thrifts' losses.
In a tack reminiscent of the Reagan administration's stance in 1988, Bush administration officials say the money will last until after congressional elections this fall.
Figures supplied to congressional banking committees at the end of January by corportion Chairman L. William Seidman, who also is FDIC chairman, suggest that $74 billion is probably a better estimate of the losses than $50 billion.
They can only go higher. The industry as a whole is still deteriorating, compiling losses of a magnitude not seen since the Great Depression.
The industry lost $11.5 billion in the first nine months of last year, on track to break the record $13.4 billion loss for all of 1988.
Meanwhile, stringent new financial standards in last summer's legislation are forcing savings institutions to shrink.
The rules require thrifts to back their lending with more of their owners' money. Most can't raise the capital. As a result, they must trim their balance sheets.
Excluding interest, $74 billion in deposits poured out of S&Ls last year, at first because the industry's problems had shaken customers' confidence, later because thrifts sold assets and no longer needed the deposits.
Those that cannot downsize successfully - an estimated 180 to 250 - will fail, bringing the government's caseload to nearly 600 institutions. By the end of this year, analysts predict fewer than 2,400 solvent S&Ls will remain, down from 3,200 only three years ago.
The survivors have little reason to welcome 1990. Weak real estate markets have spread from the oil-producing states of Texas, Oklahoma, Louisiana and Colorado to nearby Arizona and to the Northeast, particularly New England.
The demise of Drexel Burnham Lambert Inc. and the near-collapse of the junk bond market also threatens a handful of big thrifts.
A month ago, CenTrust Savings Bank of Miami became the first S&L to fail because of junk bond losses. It was followed by Imperial Savings Association of San Diego, which had the industry's second-largest junk bond portfolio.
Congress, which produced the S&L bill in six months, likely will spend 1990 evaluating its handiwork rather than fixing it.
by CNB