In an effort to attract more investors and generate greater yields from the liquidation of failed savings and loan assets, Roger Altman, the acting chief executive of the Resolution Trust Corp., has established new size limits for asset portfolios sold by the RTC.
It is not surprising that those who once benefited from the virtual absence of competition at the bargaining table would criticize this bold move. Much less explicable is the indictment of the current administration and Mr. Altman by critics who suggest that the moves further pork-barrel practices.
The critics have argued that, by responding to the "little guys" who seem to be willing to pay more for S&L assets that are offered in smaller packages, the RTC is "providing political favors to a vocal special interest." What the critics call "political favors," however, is rather a prudent and overdue government response to the growing concerns of constituents.
As a community-based financial institution, we are one of these "little guys" that have for some time witnessed a feeding frenzy of RTC "product" by investment bankers. Applying a purely Wall Street mentality, this frenzy is based on buying artificially low to assure sizable profits.
Accordingly, the laws of probability and statistics have become the surrogate for prudent underwriting and risk management. It is the taxpayer who loses when assets are hastily sold for far less than their market value because of a lack of financial discipline.
And now, those who were content to let the biggest and baddest rule the sty are squealing "foul!"
In 1992, $11 billion in assets were sold via bulk sales in excess of $50 million dollars each. Almost half of these assets were sold to the same four purchasers -- General Electric Capital Corp., Goldman Sachs & Co., Kidder, Peabody & Co., and Merrill Lynch & Co.. The average purchase price was roughly 49 cents on the dollar.
In the past, the majority of investors could not partake in these portfolio sales due to the prohibitive size of each offering. The fear now is that the trough will suddenly become overcrowded with buyers who, as a result of smaller packages, will be able to compete. As a result, the "little guy" may well drive the price up -- and increase recoveries for both the RTC and the taxpayer.
More competition? Higher recoveries? Isn't this the point of it all in the first place?
Breaking the packages into smaller pieces may theoretically slow the liquidation process. But the RTC's mandate is not simply to make assets go away; it's to make them go away at the highest possible price.
The suggestion that the RTC is catering to special interests is an insult to the entire financial community and a slap in the face to the RTC's outstanding senior management staff.