Rescued S&Ls Showing Mettle

A handful of taxpayer-assisted thrifts in the Oil Patch have built strong capital ratios that leave them well positioned to grow in the coming years, according to an American Banker survey.

Of the 15 thrifts with the highest ratios of risk-based capital to assets, nine were formed in 1988 and sold to investors by the Federal Home Loan Bank Board.

In one respect, the turnarounds can be seen as vindication for the much-maligned Bank Board, said Richard K. Kneipper, a lawyer in the Dallas office of Jones Day Reavis & Pogue. "It may show that the regulators were smart enough to create institutions that will survive."

But it also could suggest that the government deals, which have been widely criticized as overly generous to investors, created competitors having an unfair edge over banks and unsubsidized thrifts.

Biggest Getting Bigger

The survey also found that Home Savings of America, the California unit of H.F. Ahmanson & Co. of Los Angeles, remained the largest thrift, with $39.4 billion of deposits. Great Western Bank of Beverly Hills remained second, with $30.3 billion in deposits. (Tables ranking the 300 largest thrifts begin on page 8.)

The three thrifts with the highest capital ratios adjusted for riskiness of assets were formed by government bailouts.

American Federal Bank of Dallas had the highest ratio, 57.52%, eight times higher than the 7.20% minimum. Next were Beverly Hills Business Bank, at 43.25%, and Columbia Savings of Englewood, Colo., at 38.07%.

Appealing at the Core

The three institutions also had relatively high core-capital ratios, another important barometer of financial strength.

American Federal's core capital equals 6.36% of assets, well above the 3% minimum. Beverly Hills Business Bank's ratio is 8.75% and Columbia Savings' is 5.44%.

These thrifts are enjoying plush ratios at a time when other thrifts are under severe pressure, in large part because of the assistance agreements that provide cash payments over 10 years. For example, American Federal collected $59.4 million in aid in the first half of the year, Beverly Hills Business Bank received $26.5 million, and Columbia Savings got $58 million.

Earnings Stick to the Books

Gerald J. Ford, chief executive of the largest thrift created under the Bank Board's so-called Southwest plan, acknowleged that the assistance boosts capital ratios by increasing the amount of earnings that can be retained after dividends are paid to shareholders.

Furthermore, risk-based capital ratios are helped because the government is now on the hook for shaky investments, such as commercial real estate and land loans, that otherwise would have required capital reserves.

Therefore, he said, the high ratios should surprise no one. "That's dog-bites-man stuff," said Mr. Ford, who runs First Gibraltar Bank of Texas.

Nourishment for Growth

Their relatively strong capital position gives the rescued thrifts an edge should they decide to grow, said Jonathan E. Gray, an analyst with Sanford C. Bernstein & Co.

He cited World Savings of Oakland, long regarded as one of the nation's strongest thrifts, as an example of how high ratios can fuel growth.

The survey showed that World Savings leapfrogged over three less-capitalized thrifts in the year ending June 30 and now ranks as the third largest.

Citicorp's Citibank FSB of San Francisco - also helped by strong capital ratios - jumped 10 places, now ranking ninth in deposits.

Stagnant Year for the Rescued

So far this year, however, none of the rescued thrifts has grown significantly, the survey shows.

The theory behind the Southwest plan, Mr. Kneipper said, was to create institutions that would emerge after 10 years in a friendlier economic climate, giving the government and investors an opportunity to share the benefits. The strong capital ratios are an indication that the thrifts are well on their way to that goal, he said.

Some of the more outlandish ratios could soon fall, now that Congress has ordered regulators to renegotiate some of the terms by yearend, Mr. Kneipper added.

The strength of the Southwest plan thrifts could cost market share for thrifts that have struggled by without assistance, according to Mr. Gray.

On the other hand, noted Gary Gordon, analyst at PaineWebber Inc., these thrifts are concentrated in Texas where they will compete among themselves and with "reconstituted" banks that have similar advantages. Thus the assistance may not have the industrywide implications, Mr. Gordon said.

Pelican Made Flightless

One rescued thrift that has faltered is Pelican Homestead & Savings Association, Metarie, La. It had the worst risk-based capital ratio.

The transactions that created Pelican in 1987 were precursors to the Southwest plan; they merged thrifts with overlapping branch networks in order to create economies of scale. But the deals did not include asset guarantees, so the risky assets continue to burden the balance sheet, explained Robert M. Shofstahl, president and chief executive officer.

Ballooning Rescue Costs

Initially, the deals were expected to cost $40 billion over 10 years. But like most tallies of thrift rescue costs, estimates of this aspect of the bailout have doubled since then.

Critics still say the deals were giveaways. But defenders say they were cheaper than the alternative of liquidating thrifts that were insolvent - and losing money.

But whatever they deals prove about government policy, it's clear that they have fostered some unexpected changes in the financial landscape.

"From an equity investor's perspective," noted Bruce Harting of Salomon Brothers, "it used to be, when you asked about investments in Texas, the answer was always |no.' Now, there will be some options."

PHOTO : 5 Highest Ratios of Risk-Based Capital

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