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$1.7 Billion Bailout of Miami Thrift Tops Rash of Rescues With PM-S&Ls-List and PM-S&Ls-States

June 30, 1990

WASHINGTON (AP) _ The government ended a three-month, 155-institution series of savings and loan rescues and closings with a record $1.7 billion taxpayer bailout of CenTrust Bank of Miami.

Regulators are paying Great Western Financial Corp. of Beverly Hills, Calif., to take over the 71 branches and $5.2 billion in deposits of Florida’s largest thrift institution.

CenTrust marks the biggest bailout of a single thrift so far. But it likely will be topped when regulators find an acquirer for Charles H. Keating Jr.’s Lincoln Savings and Loan Association of Irvine, Calif. That rescue could top $2 billion.

In all Friday, the Resolution Trust Corp., created 11 months ago to clean up the thrift industry, sold 14 institutions and closed one at an estimated cost of $3 billion.

The RTC has spent $16 billion to resolve 155 failures since its chairman, L. William Seidman, launched ″Operation Clean Sweep″ at the end of March in response to complaints that the agency was moving too slowly. Before April 1, it had resolved 52 failures at a cost of $9 billion.

The activity of the last three months is rivaled only by the 75 deals completed in December 1988 by the RTC’s predecessor, the Federal Home Loan Bank Board.

When regulators seized CenTrust in February, they blamed its failure on speculative investing, including purchase of more than $1 billion in junk bonds. Most of the bonds were sold by the investment banking firm Drexel Burnham Lambert Inc., which later crashed itself.

They also cited the lavish spending of the institution’s chairman, David L. Paul, who spent millions of dollars of deposits on a museum-quality art collection kept at his home; a company yacht, limousines, a corporate jet and gold-plated toilets in the executive washrooms.

A ″fraud squad″ of investigators is examining the legality of $328,000 in political contributions by Paul.

Great Western purchased about half of CenTrust’s $6.7 billion in assets, with the right to return them within three months if they turn out to be worth less than expected. The assets include cash and investment-grade securities, residential mortgages and consumer loans.

The RTC will keep the rest, including the junk bonds, and try to sell them to other buyers.

In another major package of deals, Security Pacific National Bank acquired Gibraltar Savings of Simi Valley, Calif., and an affiliated but separately chartered S&L of the same name in Seattle, Wash.

Security Pacific gets $6.5 billion in deposits and control of six branches in Washington and about 80 in California. Separately, Great Western received an 18-branch Florida subsidiary of the Washington S&L. The estimated taxpayer cost of the Gibraltar transactions totals $628 million.

Despite the April-June spree, which included a one-day record of 26 sales and closings on June 22, the bulk of the agency’s work remains to be done.

With the failure of five more S&Ls on Friday, the RTC has 247 S&Ls yet to sell or close and it expects at least that many now in private hands to fail in coming months.

″I think they’ve done a good job so far, but they certainly have their work cut out for them,″ said economist Paul Getman of Regional Financial Associates in West Chester, Pa.

RTC critics in Congress have complained that sale of the S&Ls is the relatively easy part of the bailout program. The agency so far is keeping about 70 percent of the institutions’ assets, usually sour loans and distressed real estate. Far more difficult, critics say, will be selling the assets.

″I think this is an important first step, but it has to be understood as modest in relationship to the totality of the problem,″ said Rep. Jim Leach, R-Iowa, a senior member of the House Banking Committee.

″We still won’t know the true depth of the problem until the real estate and loan assets are sold,″ he said.

Seidman has said the RTC expects to scale back to resolving between 50 and 70 institutions in the July-September quarter. Over the last week, the agency asked for bids on 73 institutions with combined assets of about $48 billion.

After that, the corporation could be forced to suspend S&L sales for lack of money. The $50 billion Congress allocated last summer to cover thrift losses is running out. Congress and the administration are considering a second bailout as part of negotiations on the 1991 budget.

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