Bank Seizures Likely to Pick Up As FDIC Employs New Funding
WASHINGTON -- Flush with $70 billion in new funds, federal regulators are expected to begin accelerating soon their seizures of troubled institutions.
Scores of savings banks in the Northeast are at the top of the list, according to L. William Seidman, former chairman of the Federal Deposit Insurance Corp.
Meanwhile, huge loan losses have sapped the capital of a number of large commercial banks. Among the most troubled is First City Bancorp in Houston, with $11.8 billion in assets.
As the Bank Insurance Fund headed toward insolvency this year, bank closings slowed dramatically. The FDIC originally predicted that 180 to 230 institutions would be seized this year, but the latest estimate -- after three revisions -- is 137. So far, 117 have actually been closed.
This slow pace prompted widespread speculation that regulators were holding back on seizures to preserve cash. The FDIC's reserves, which started the year at $8.4 billion, now stand at about $2 billion.
The FDIC vigorously denies any foot-dragging. Alan J. Whitney, an agency spokesman, said the explanation for fewer closings is simple: "More banks [that] we thought were going to fail this year are going to fail next year."
Each time the FDIC cut its prediction of failures this year, it increased the estimate for 1992. It now expects that 200 to 239 banks, with assets of $86 billion to $116 billion, will be closed next year.
Increased Borrowing Power
The bank bill passed by Congress last week increases the borrowing authority of the FDIC by $70 billion, to $75 billion.
"Now that we've been refueled, that means we can continue to do business as usual," Mr. Whitney said. "Business as usual is dealing with the expected continued high level of bank failures in the Northeast."
Mr. Whitney declined to comment on how quickly the pace of closings might accelerate, but most experts think it will happen soon and center on FDIC-insured savings banks.
"The bulk of the money, I think, is going to be spent in the Northeast and particularly in the savings bank industry," said William Isaac, a former FDIC chairman and now managing director and chief executive of the Secura Group.
Savings Bank Focus
"The savings banks are clearly why Mr. Taylor [told Congress] he needed more money," said Mr. Seidman, referring to William Taylor, the new FDIC chief.
SNL Securities, Charlottesville, Va., estimates that, in all, 150 savings banks are likely to fail at a cost of $50 billion to the FDIC.
Savings banks lost $1.7 billion in 1990 and $662 million in the first half of this year.
Among the most troubled are: Dime Savings in New York, with $10.3 billion in assets; Dollar Dry Dock in New York, with $4 billion in assets; American Savings in White Plains, N.Y., with $3.7 billion in assets; and Crossland Savings in Brooklyn, with $10 billion in assets.
Rule of Thumb
As for commercial banks, one danger sign is when an undercapitalized institution's stock price drops below $5, according to John Oros, a limited partner at Goldman, Sachs & Co., New York.
"The rule of thumb is, stocks under $5 are headed to zero, and stocks between $5 and $10 are headed for trouble," Mr. Oros said.
Besides First City, ailing banks whose stock price is less than $5 include: Midlantic Corp., Edison, N.J., with $21.5 billion in assets; MNC Financial Corp. in Baltimore, with $19 billion; Hibernia Corp. in New Orleans, with $7 billion; Riggs National Bank in Washington, with $6 billion in assets; and Equimark in Pittsburgh, with $3.3 billion in assets.
PHOTO : William Isaac, Cites Northeast savings banks