One by one, commercial banks are picking off the nation's thrift institutions, especially those that have fallen into the hands of the Resolution Trust Corp.

Some banks doing it well, others are handling it badly, and still others are simply watching from the sidelines because they don't feel they know how to bid.

Basically, there are three market-driven reasons to buy a thrift: to enter a new market, to increase share of an existing market, or to preempt a competitor j from doing either or both.

There are economic reasons as well - to create critical mass, whereby the overhead of a bank can be spread over a large customer base, and to acquire a large amount of new deposits that can be invested at good spreads.

Full Pockets Required

Not every bank should buy a thrift, however. Because the instant growth will reduce capital ratios, a bank should be in a strong capital position, or be in a position to raise capital, before it seeks out a failed thrift.

If loan demand is weak and you see no way to put new funds to work profitably, a thrift purchase is not for you.

Integrating the thrift into your present operation usually involves headaches. The technologies might be incompatible. You may be inheriting a staff with extremely low morale that still might look on you as enemy rather than liberator.

Signing Up

But let's assume that you have wrestled with all these issues and have come to the conclusion that it would be in your institution's interests to acquire a thrift in your area.

The first step is to register your intentions with the RTC - both in Washington and at your regional RTC office - and ask that your name be put on its bidder's list. This ensures that you will be notified of a bidders' meeting when a thrift in your region is about to be put up for sale.

At the meeting, representatives of the RTC will distribute background information about the institution, as well as copies of various purchase-and-assumption agreements and a great deal of collateral material.

Typically, the bid meeting is held three to four weeks ahead of the dealine for submitting the bid, unless there are unusual complicating factors.

Showing Up

Some bankers are hesitant about attending a bidder's meeting, for fear of tipping their hand to competitors who happen to be present. This fear is generally unfounded, according to David Albertson, who was formerly a government agent in charge of failed thrifts and now advises bankers on acquiring thrift assets through Albertson & Associates, based in Evanston, Ill.

At one recent meeting that Mr. Albertson was involved in, there were about 70 people in attendance: 11 of them made due-diligence appointments, nine actually performed due diligence, and five finally submitted bids.

It is not unusual for the RTC to provide information about a number of institutions at the same meeting, Mr. Albertson says. "Many bankers will attend bid meetings when they have no intention of bidding.

"They just want to see what's changed since the last meeting they attended. Unless you're clairvoyant, presence of a competitor would not give you a clue as to their intentions."

The purchase-and-assumption agreement is a very important document, he stresses, for it specifies the conditions under which the deal will be constructed. It also provides clues for devising "creative" bidding strategies, Mr. Albertson adds, such as the possibility of getting back some portion of your premium.

Team Effort Is Crucial

It's wise at this point to call on the expertise of your various staff officers who would be involved in the purchase, from such areas as commercial lending, retail lending, marketing, operations, and human resources, to prepared a list of questions that could later be used as part of due diligence.

If you still think you may want to bid, then put together your due-diligence team, make an appointment with the RTC's local managing agent, and begin to plan your due-diligence visit. This should be done as soon as possible following the bid meeting. You may also want to alert your legal counsel, who will become more actively involved after you've made a positive decision to bid.

The information gleaned from the due-diligence exercise is critical in determining the bid price, in Mr. Albertson's view.

He describes due diligence as "an investigation to learn as much as you possibly can and to eliminate as many surprises as you possibly can, given the time constraints. It is also the cornerstone for preparing the bid."

Albatrosses Put to Rest

Because of those narrow time constraints and the limitation on the size of the group you can bring in, due diligence is materially different for an RTC purchase than for a normal purchase, he warns. In at least one respect, however, it's easier: You needn't be concerned with the "sins" of previous owners, for the government has taken that albatross from around your neck.

Careful planning, nevertheless, is important for due diligence, and Mr. Albertson has developed a lengthy checklist that maximizes the efficiency of that process. While considerable attention is naturally devoted to the condition of the loan portfolio, he says, an effective due-diligence operation does not focus unduly on loans.

Actually, a kind of triage has already been performed by the RTC. The worst loans have been pulled out of the pile. In the past, certain loan pools have been optioned with put-back provisions, which means you have time -- 30 days -- after the purchase to decide whether or not you want to keep them.

"Why waste your time on the put-backs," he asks, "when you don't even know at this time if you're going to win it? You can always examine those loans after the purchase."

There has been talk, however, of doing away with put-backs, Mr. Albertson observes. He feels this move would be "unfortunate, as it will reduce the options, could lower bids, and will leave more loans to be disposed of by the RTC."

'Kicking the Tires'

Mr. Albertson likes to spend a good portion of his time with the due-diligence team, "kicking the tires" of the prospective acquisition.

"To paraphrase Tom Peters, I like to call it 'due diligence by walking around'," he says. By talking to the employees, examining the condition of the building, looking at tenant leases, poking into the operation system, examining the kinds of reports the institution's data processor provides, "you can prepare a much more sophisticated bid," he contends.

"It's a chance to get into every nook and cranny that they'll allow you to, given your time constraints, with the idea being that we're going to own this thing in the next 30 days," he says.

"What's the deposit structure like? How's the lobby traffic? Are the tellers happy or surly? What kind of PR problem am I going to have? Where can I put my signs?"

A Run for the Money

When you return from due diligence, Mr. Albertson says, you need to "run the numbers," to see if an assumption makes sense for your bank. "Don't just use management and the numbers guy to do this," he advises. "Lending, marketing, human resources all need to be involved. And this is the time to bring in your legal counsel, as well, if you have not already done so, as regulatory approval can take from two to four weeks."

If you decide at this point to make a run for it, you need to structure your bid. Mr. Albertson notes that many bankers make a big mistake here by worrying about how much the other bids will be. The more successful players, he says, will bid a price that makes sense for them, should they win it, regardless of the amount they think competitors may offer.

"Remember, this is a blind bid," he says, "and you don't know who will bid or what opportunities or problems they will see."

There are normally a number of options to be considered when structuring a bid. If it is a whole-thrift bid, a bank often has the choice of bidding for all deposits or only the insured deposits, for example.

Public Relations Problems

Bidding for all deposits will raise the ante for the RTC, and therefore lower the relative value of your bid. But it will also avoid some public relations problems when customers lose their uninsured funds.

Particularly troublesome are the PR problems arising as a result of those depositors who own $100,000 certificates of deposit. While their principal is protected, any interest on that principal falls on the other side of the line and is not insured.

As the acquiring bank, you have the option to repudiate interest rates on any CDs, and you can unilaterally change the rates on them. But the depositor also has the right to redeem a CD at any time, without penalty, unless you take certain steps to prevent this.

Your deposit rate repudiation intentions are only one factor to be considered in determining your bid. There may be options on pools of loans with a chance to put part of your bid on them, thereby reducing their goodwill portion.

Pitfalls for the Novice

"There are ways to bid," he contends, "that increase your chances of winning without necessarily increasing your bid. Bidding, itself, is an area where the novice can hurt himself inadvertently."

After the bid has been submitted, he says, there's nothing to do but wait for the phone call that says you are the winning bidder. Unfortunately, the losers are seldom notified.

The pace picks up considerably after you've been called and told that you are the winner. Typically, you have only a week to 10 days to plan your transition.

Even then, he says, surprises will occur. An example: the time the acquiring bank thought it was going to get the thrift's passbooks, which it needed.

"Without them, we could not open passbook accounts the following morning," he recalls. In that case, some last-minute negotiations between the bank and the RTC resolved the problem.

Mr. Albertson's point: By being prepared for almost all eventualities, you can bring your resources to bear on the problems that do and will surface. "The better you have planned for the expected," he declares, "the better the position you will be in to deal with the unexpected."

Employee Relations

"Anticipation is the name of this game," Mr. Albertson says. "Before meeting with them, have your people make a list of the most embarrassing questions new employees might ask at that first meeting, and make sure you have a truthful answer for each of them."

Mr. Albertson recommends telling the employees that they will stay where they are for the next 60 or 90 days.

At the end of that period, make all your changs at once, so that all the "bad" news will be out of the way as far as dismissals or transfers are concerned.

And don't forget the customers, Mr. Albertson advises. Most of them will be pleased that a strong organization like yours has taken over; yet, they will have questions and concerns that need to be answered.

You'll want to send them an announcement letter, and the RTC has a notification letter that must be sent to depositors regarding the institution's right to change rates.

The acquisition of a failed thrift can be a bit overwhelming to the bank that's never been through it before, Mr. Albertson admits. But at the same time, it offers the potential for quick growth, increased market share, and profits.

Mr. Bartling, a freelance financial journalist based in Evanston, Ill., was formerly managing editor of Practical Banker and publisher or Bank Marketing.

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