Bluebonnet Savings Bank, a Texas thrift that aroused congressional scrutiny for reaping millions of dollars of federal assistance in the wake of the savings and loan crisis, is reinventing itself.

Its taxpayer-financed assistance depleted, Dallas-based Bluebonnet is selling its 21 branches and $1 billion in retail deposits to NationsBank Corp.'s Texas affiliate.

With the sale, announced Friday, Bluebonnet officials said the thrift would become a wholesale bank and make a push into a variety of specialty businesses. It will retain its thrift charter so it can offer wholesale deposits.

Saying "we've finished that part of our history," Bluebonnet president R. Brad Oates said the company now wants to go into finance businesses, including affordable housing finance, insurance, and credit card technology.

"We're a very entrepreneurial organization," he said.

The sale marks the end of a controversial chapter in Bluebonnet's history. In 1990, James Fail, Bluebonnet's owner, was excoriated in Senate hearings for what some observers said was profiteering from the confusion of the thrift crisis. That's because Bluebonnet received $2.8 billion in direct government assistance in the last seven years to resolve the bad assets from 15 failed Texas thrifts it took over in 1988.

Bluebonnet's 1988 contract with the government assumed that it would stay in business as a thrift. But Bluebonnet's government funding ceased in August, and it now has to rely on its core business to stay profitable. But Bluebonnet officials decided not to stay in the traditional savings and loan business.

Terms of the branch sale were not announced, but an unidentified source put the premium price on deposits at 4%, or $40 million. Another source said NationsBank beat out other suitors because it was willing to buy all of Bluebonnet's branches and deposits, while other bidders were only interested in parts of the company.

But Dennis McCuistion, analyst with McCuistion & Associates, Dallas, termed the branch sale "very bizarre," given that the $2.7 billion-asset Bluebonnet was one of the most profitable large thrifts in the country.

Mr. Oates said the thrift's management has long believed that the traditional thrift business is "probably dead and waiting to be merged into the banking industry."

Bluebonnet did well in 1995, earning a 2.38% return on assets and a whopping 32.40% return on equity.

Much of that profitability, however, was underwritten by the federal government. Bluebonnet was part of the Southwest Plan deals in which the Federal Savings and Loan Insurance Corp. gave large incentives to private investors to take failed thrifts off government hands.

The incentives took the form of yield maintenance agreements and capital recovery guarantees, assuring that investors - in this case Mr. Fail - would not take a loss on any of the assets assumed from the FSLIC.

Mr. Fail, who bought Bluebonnet for $120 million, and other investors in Southwest Plan deals were also allowed to keep years worth of net operating losses on the books, effectively sheltering their future operating profits from taxation.

Mr. Oates of Bluebonnet said the thrift still has some net operating losses on its books, but said he couldn't say how much. The losses were halved in 1993 as part of a change in federal tax law.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.