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Sickly Thrift Bailouts: Frenzy of Pre-New Year Deals Raise New Concerns

December 31, 1988

NEW YORK (AP) _ Government bureaucrats think they had good reason to pop champagne corks early for their success at peddling some of the sickest insolvent savings and loan institutions before the New Year holiday.

But congressional critics think the last laugh may belong to the slick financiers who bought them, risking little of their own money, gaining huge tax benefits and controlling a vast new source of assets.

Once criticized for moving too sluggishly to solve the nation’s thrift crisis, federal regulators intensified efforts this past week to sell at least 200 insolvent S&Ls by the end of the year.

On Wednesday and Thursday alone, the Federal Home Loan Bank Board, which regulates the nation’s 3,100 savings institutions, sold 22 of the insolvent thrifts it has been forced to take over because of mismanagement and bad loans.

They included the first sale of a U.S. thrift to foreign investors. Pacific USA Holdings Corp., the Texas unit of a Taiwanese concern, is acquiring eight institutions with assets worth $850 million.

The bank board’s biggest single sale was the American Savings & Loan Association of Stockton, Calif., with more than $30 billion in assets, to a group controlled by the Texas takeover strategist, Robert M. Bass, who will only have to put up $500 million in return for $1.7 billion of government aid.

But the costliest to the government was the sale of five insolvent Texas S& Ls to an investment group headed by New York takeover strategist Ronald Perelman, chairman of Revlon Inc.

For a $315 million investment of its own and $5.1 billion of federal aid, Perelman’s group will obtain control of savings units with assets of $12.2 billion.

Part of the last-minute rush to sell sick thrifts was due to tax law changes that expire Sunday, halving the potential benefits to buyers.

But the selling spree has raised new questions about whether the government is relinquishing too much in its effort to unload the problem. Concern also has intensified over many of the buyers, professional financiers who aren’t necessarily interested in running these thrifts but consider them undervalued.

″The haste with which you are proceeding may prove to be short-sighted, irresponsible and ultimately unfair to U.S. taxpayers,″ Sen. Howard Metzenbaum, D-Ohio, said in a letter to the bank board.

Rep. Henry B. Gonzalez, D-Texas, new chairman of the House Banking Committee, said he intends to hold hearings in January to scrutinize these deals, especially the two largest bailouts.

Bank board officials, who toasted the biggest deals with champagne, defended the massive infusion of money to salvage the bankrupt S&Ls, saying it would cost taxpayers much more if they were closed, which would require the government to pay off the depositors.

They also rejected the other alternative, continuing to run bankrupt institutions that are losing more money every day.

Some thrift industry analysts said the situation reflects the extremely weak bargaining position held by the bank board, which doesn’t have enough money to shut down failed S&Ls and doesn’t want to keep them. In the end, the government may have to settle for whoever is willing to buy.

In other business and economic developments this past week:

-The government’s economic statistics suggested a mixed picture going into 1989. The Commerce Department said U.S. industries will expand for the seventh straight year, strengthened by demand for exports and services. But its chief economic forecasting gauge turned down slightly and home sales hit an 18-month low in November, suggesting that rising interest rates are dampening growth.

-Drexel Burnham Lambert Inc.’s record $650 million deal to settle criminal fraud charges began to hurt the company’s business. A federal judge in Boston delayed a Drexel-financed takeover effort of Prime Computer Co. because of his concerns over the settlement, and New York City barred the firm from participating in its next bond sale.

-American Telephone & Telegraph Co. agreed to buy Paradyne Corp. for $250 million, a move that reflected the telecommunications giant’s new willingness to acquire other companies rather than develop new technology on its own. Elsewhere in the takeover business, Sunshine Mining Co. said it would buy Rexene Corp. for $865.2 million; Pennwalt Corp. rejected a $698 million offer from the Centaur Partners investment group; and Avery Inc. said it was negotiating to sell its Uniroyal Chemical Co. unit to a management-led investment partnership, a deal potentially worth more than $800 million.

End Adv Weekend Editions Dec. 31-Jan. 1.