WASHINGTON - John E. Ryan has headed the Resolution Trust Corp. during the two least controversial years of the thrift-bailout agency's existence. But he stills feels bruised by the experience.
"We have no political support anywhere, which makes us an extremely easy target," said the agency's acting chief executive officer, who returns next week to his old job as director of the Office of Thrift Supervision's Southeast region. "We're the agency everybody loves to hate, and that makes it difficult."
Mr. Ryan has a point. No one has ever loved the RTC.
Since its inception in 1989, the agency has been squeezed by funding bottlenecks and battered by charges of profligacy, ineptitude, meanness, and fraud. More recently, it has even found itself tangled in the scandal surrounding President and Mrs. Clinton's dealings with a failed Arkansas thrift.
But with the RTC set to go out of business at the end of this week, it's hard to dispute that it has accomplished exactly what it was set up to do.
The agency has cleaned up after 747 failed thrifts and sold off $451 billion in assets. The thrift industry, in tatters in 1989, is healthy again. Banks are enjoying record profits. Taxpayers will get back about $15 billion of the $105 billion Congress authorized for the RTC. And perhaps most remarkable of all, the agency actually will go out of business as planned.
"I'm not going to say they did a good job, because the RTC was set up to do something government's never good at doing, being entrepreneurial," said Bert Ely, an Alexandria, Va., banking consultant and leading student of the 1980s thrift industry collapse. "But when you look at the last couple of years, you've got to say they probably didn't do such a bad job."
After a slow start, when it tried to sell failed thrifts whole (as the Federal Deposit Insurance Corp. does with banks) and couldn't find any buyers, the RTC became a selling machine, chopping unappealingly insolvent S&Ls into marketable bits. It then cleared out those bits of pieces of failed thrifts at a blistering pace using auctions, securitizations, and simple salesmanship.
It's hard to say whether the agency got the best possible prices for the assets and deposits it sold. One yardstick RTC executives like to use is their recovery rate of 87% - that is, the agency recovered 87% of the $451 billion book value of the assets it sold. But even Mr. Ryan admits that, with no similar experience to compare it with, he can't say what that 87% means.
"It's difficult to judge," he said. "I do believe that if you went back to 1989 when the RTC was created and asked for estimates of what the recovery rate would have been, I don't think anyone would have suggested we would have come in at 87 cents on the dollar."
Equally tough to judge is the RTC's success in getting money out of the pockets of S&L executives, directors, lawyers, accountants, and Wall Street firms that contributed to thrift failures. The agency recovered about $2.3 billion in legal settlements - $985 million from the now defunct junk bond powerhouse Drexel Burnham Lambert.
In hearings before a House Banking subcommittee this summer, Rep. Spencer Bachus, R-Ala., blasted this record as "dismal." But RTC officials countered that $2.3 billion wasn't bad at all, considering the hostile legal environment in Texas, where many of the suits were filed, and Congress' failure to pass laws making RTC collections easier.
Less debatable is the RTC's impact on the financial and real estate markets. In looking for ways to clear out the assets of failed thrifts, it created new markets for commercial mortgage securities and nonperforming loans. In the process, it facilitated a huge shift of deposits from thrifts to big banks, and an equally large transfer of assets from the banking system to Wall Street.
At its peak in 1990, the agency was one of the country's biggest financial institutions, with assets of $180 billion. The "overhang" effect of those massive holdings depressed real estate markets in California, Texas, Florida, Arizona, and several other states.
At first, no one wanted what the RTC had, and the FDIC veterans who ran the agency fumbled as they tried to find ways to drum up a market. Adding to their troubles early on was the agency's heavy reliance on contractors to get its work done.
"We didn't know anything about using outside contractors at the FDIC; we were an in-house operation," said David Cooke, who was the RTC's executive director from 1989 to 1992. "Every wannabe or would-be contractor in America was calling us, and if they couldn't get through they were calling their congressmen."
There were repeated cases of overbilling by contractors. The most notorious may have been the $25 million paid to the accounting firm of Price Waterhouse for photocopying records of a San Diego thrift.
"It took a couple of very conspicuous embarrassments to really put in place what I think are fairly tight controls now," Mr. Ryan said.
"I think we learned from all the mistakes we made," added Mr. Cooke.
One move that past and present RTC executives agree wasn't a mistake was selling loans and real estate quickly instead of holding on and waiting for prices to rise.
"It cost 10% of the property value to keep property for a year," said Albert Casey, the former postmaster general and American Airlines chief executive who served as the RTC's chief executive in 1992 and 1993. "We weren't moving it fast enough."
Donald W. Crocker, vice chairman of J.E. Robert Cos., a big RTC property-management contractor, said getting rid of the RTC overhang made it possible for prices to come back. "Had you held on to the properties, the costs in my opinion would have been much higher," he said. "The impact on markets regenerating themselves would have been much worse."
To be sure, selling quickly meant some buyers got great bargains. With the troubled loans and real estate the RTC sold, it was the likes of Goldman Sachs and GE Capital that bought early and have since booked big profits, while banks and thrifts stood on the sidelines.
Big banks did, however, pick up a lot of new branches and deposits from the RTC. A 1994 study by the Southern Finance Project, a Virginia-based think tank, found that 10 big banks and thrifts had acquired more than half the thrift deposits sold by the RTC through the end of 1993.
"We took 747 failed institutions, and there weren't 747 different buyers," Mr. Ryan said. "Sure, we contributed to concentration. But nowhere near the degree to which it's going on in the private sector now."
Over time, the prices paid for those deposits went way up. By the end, buyers were paying the RTC premiums of as much as 13% of core deposits.
"The RTC process was an openly competitive bidding process where the high premium prevailed, there was no insider dealing," said Peter Moriarty, president of TTG Inc., a Washington, D.C., agent for buyers of banks and thrifts. "The RTC has done as well as anyone in the private sector as far as premiums are concerned."
The RTC hasn't cleared out everything yet - $14 million in hard-to-sell loans and property still have to be disposed of, and about 2,000 RTC employees will move to the FDIC to help finish the job.
Many of those won't stay with the downsizing FDIC for long, however, and it's not clear how comfortable the venerable deposit insurance agency will be with the aggressive, entrepreneurial tactics of the RTC.
The two agencies have drawn up a list of "best practices" that commits the FDIC to using many RTC tactics.
But Mr. Moriarty, the agent for bank buyers, is skeptical. "My suspicion is they will probably discard much of what was developed by the RTC in favor of their old established ways," he said.
