The federal agency taking control of insolvent savings and loans called a halt Wednesday to the controversial practice of using certain costly government concessions to bail out the nation's ailing thrifts.
The Federal Deposit Insurance Corp., the agency that President Bush ordered this week to seize 224 ailing S&Ls within the next month, said it would suspend consideration of any pending offers to acquire those institutions if they involve government loans or protection against losses.
"We are not going to put together a transaction that has those features, because they are too potentially costly," said FDIC spokesman Alan Whitney.
The FDIC's statement in effect is a renunciation of tactics used by the Federal Home Loan Bank Board, which arranged dozens of deals toward the end of last year whereby private investors acquired ailing thrifts using these or other concessions. The FDIC statement also suggests that the bank board has been far too generous in granting concessions to buyers of ailing thrifts, a sentiment echoed by several members of Congress and other regulators.
The bank board, which has been stripped of its role as the primary overseer of thrift rescues, is the principal regulator of S&Ls. The FDIC, which principally regulates banks, is seen as a far tougher regulator than the bank board.
The FDIC statement also may be a recognition by the agency that Bush's comprehensive bailout plan for the nation's thrifts, announced Monday, may cost a lot more than the $90-billion price tag used by the President.
"Before we go forward with transactions, we are going to evaluate . . . where we stand," FDIC Chairman L. William Seidman said.
The FDIC statement thus could suspend dozens of takeovers for those S&Ls--solicited by the Federal Home Loan Bank Board--that have been proposed but not finalized in recent months.
Some deals have already been completed. The largest involved the acquisition of Stockton-based American Savings by Texas billionaire Robert M. Bass.
Deals such as the American Savings-Bass transaction will not be affected by the FDIC's move as long as they are already finalized, FDIC spokesman Whitney said. But any others that are not "legally binding" are likely to called off or renegotiated, he said. FDIC officials could not say which deals, or how many, fall into that category.
Under President Bush's plan, the Federal Home Loan Bank Board would declare 224 thrifts nationwide insolvent but keep them open while the FDIC, acting as conservator, considers whether to sell or liquidate them. That plan got off to a quick start Tuesday when the FDIC took over as conservator of four ailing thrifts, including Pacific Savings Bank in Costa Mesa.
The FDIC won't be able to liquidate or sell most or all of those S&Ls until Congress approves additional funds that can be used to support such sales. Such approval may not come until June.
In the meantime, however, the FDIC will be open to offers from investors to acquire these thrifts, as long as those offers did not involve government loans or guarantees against losses that might be suffered by buyers, Whitney said.
Meanwhile, in New York on Wednesday, the chairman of the bank board said that he expects many banks to acquire thrifts under the government's savings industry rescue plan but that he doesn't believe the program signals the death of the industry.
M. Danny Wall also told a meeting of international bankers that the government actively would seek restitution from fraudulent thrift barons, whose actions have contributed to the industry's losses, said to be accruing at $500 million a month.
He said the $90-billion bailout plan announced this week by President Bush does not signal the demise of a financial institution created in the 1930s to help Americans buy single-family homes.
"Over time, I'm convinced we should allow those kinds of institutions to borrow from federal home loan banks," he said. "You have to understand in this country we have had a very high commitment to home ownership."