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Regulators Pledge $2.5 Billion to Rescue Texas Thrifts

September 30, 1988

WASHINGTON (AP) _ Federal regulators on Friday pledged $2.5 billion in government aid toward two separate deals rescuing six insolvent Texas savings institutions.

A joint venture of three Texas firms, including Temple-Inland Inc. of Dibold, a forestry company, is getting $1.49 billion in assistance from the Federal Savings and Loan Insurance Corp. to acquire three institutions with combined assets of $3.19 billion.

Temple-Inland, along with Trammel Crow Co., a Dallas-based real estate development and managment company, and Mason Best Co., a private merchant banking firm also based in Dallas, are investing $128 million. Temple will get 80 percent of the new institution’s stock, while Trammel and Mason will each get 10 percent.

In the second deal, Club Corporation International of Dallas, one of the nation’s largest operators of private dining and country clubs, has received a commitment from the FSLIC worth $999.5 million. For an investment of $25 million, Club is getting control of three institutions with combined assets of $1.2 billion.

The two transactions bring to an end a six-week spending spree by the FSLIC, which guarantees S&L deposits up to $100,000. The agency committed more than $16 billion to shut down or merge more than 60 institutions, including 32 in Texas and 14 in Oklahoma, states hard hit by problems in the oil drilling industry and by lax S&L regulation.

The transactions in the last month and a half represent about half the 122 S&L cases resolved by regulators so far this year.

Federal Home Loan Bank Board Chairman M. Danny Wall, the nation’s top S&L regulator, had announced he was trying finish as many deals as possible before the 1988 fiscal year ended Friday night.

Wall conceded earlier this week that he mistakenly believed much of the federal assistance would not count toward the federal budget deficit if it was spent before Sept. 30. He said there were still minor advantages to finishing the deals in fiscal 1988, but said the board no longer felt pressured to finish negotiations by then.

Rep. Charles Schumer, D-N.Y., on Thursday called for a halt to what he called ″thin deals″ in the Southwest and suggested they were a ″political shell game″ intended to postpone any crisis until after the election.

The heads of the House and Senate banking committees also have criticized the bank board for failing to attract substantial private investment to the rescues.

Wall rejected those complaints on Friday, saying, ″The millions of dollars being invested in this (Temple-Inland) transaction proves again the Texas thrift market is attractive to investors as an excellent business opportunity.″

However, a review of the bank board’s nine deals rescuing 42 Texas institutions this year shows that it has committed to aid of $22 billion, while bringing in capital of only about $304 million.

The bank board’s spree of transactions has intensified debate in the weeks before Congress adjourns for the year over whether a taxpayer bailout of the S&L insurance fund will be needed next year. So far, the FSLIC has received all of its money through an assessment on the industry.

Congress’ General Accounting Office has estimated it will cost $45 billion to $50 billion to clean up the industry. Of 3,000 institutions nationwide, 500 are considered insolvent and another 400 close to insolvency.

Bruce Steinberg, an economist with Merrill Lynch, is estimating that if the GAO figure proves correct, the federal budget deficit over the next three years will be nearly $15 billion a year higher as a result.

The S&L crisis emerged as an issue in the presidential campaign on Thursday when Democrat Michael S. Dukakis blamed the mess on the deregulation policies of the Reagan Administration. The campaign of Republican George Bush, in turn, has attributed the problem to the Democratic Congress, which scaled back an administration plan to bolster the FSLIC with increased payments from the industry.

The three institutions being acquired by Temple-Inland and its partners are: Guaranty Federal Savings and Loan Association, headquartered in Dallas with 33 branches; First Federal Savings and Loan of Austin, with 22 branches, and Delta Savings of Texas, with eight branches in and around Alvin, Texas.

Among the reasons listed by the bank board for the failure of the three are: high-risk lending to avoid recognizing losses, conflicts of interest, unauthorized securities trading, speculative commercial loans, poor underwriting practices and deficient real estate appraisals.

Club International, through a wholly owned subsidiary, First Federal Financial Corp., is taking control of three Austin-based S&Ls: CreditBanc Savings Association, Franklin Savings Association and Great West Savings Bank.

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