RTC May Do Direct Deals With Wall St.
WASHINGTON - The Resolution Trust Corp. is considering a plan to cut interest costs at its 139 thrifts by borrowing money in bulk from Wall Street instead of through high-cost brokered deposits.
The plan could squeeze profits at firms such as Merrill Lynch that actively broker deposits. It would also push down rates paid to consumers who buy CDs from the RTC's thrifts.
But the move would reduce the interest rate the RTC pays on $8 billion in brokered deposits and $15 billion in Federal Home Loan advances held by thrifts in conservatorship, said Lisa Spector, the RTC capital markets director.
RTC Would Centralize Deals
Under the plan, the RTC would "represent the institutions in the market so that they are all going to the market on the same basis, paying the same costs, with the same commissions to the same firms," she said.
Ms. Spector said that the investment banking firms that would be brokering deposits to thrifts through the RTC would be "managed, and if you will, regulated by us, operating under rules that we set."
John Sprung, general counsel of Merrill Lynch Money Markets Inc. in New York, said Wall Street is backing the program.
"We thought this was a good idea," said Mr. Sprung, who is also chairman of the Securities Industry Association's ad hoc committee on brokered CDs. He acknowledged that brokers would make less money selling CDs through the RTC than if the funds were peddled directly to thrifts, but added: "Through the volume, it becomes profitable."
Support for Program
Mr. Sprung added that Wall Street is backing this program because "this is a nationwide problem and we don't want to be seen as part of the problem, we want to be viewed as part of the solution."
The program would not involve borrowing any money from the Treasury, Ms. Spector stressed.
"Brokered deposits are expensive," she noted. "We can create programs that would be managed in Washington so that each institution is not going out individually and having to find funds. But we don't want to go back to Treasury for funds."
Ms. Spector pointed out that the plan is still in the formative stages and that the Treasury Department would have to approve the program before it is implemented. But she said just investigating alternate funding sources has forced some lenders to reduce their costs of funds.
At the Treasury, a spokeswoman said that the department hadn't yet taken any position on the program. "It hasn't progressed much beyond the idea stage," she said. "I don't think we would have an opinion until we have the analysis."
For the RTC, the savings could be substantial, and they would increase as more thrifts are seized, Ms. Spector pointed out. A spokesman for the Office of Thrift Supervision said that there are 118 thrifts with $80 billion in assets that are likely to be turned over to the RTC.