To the Editor:
Your Jan. 18 article "7 Minority Banks Cry Foul Over Pricing of RTC Loans" merits some additional comments from us regarding the RTC's efforts to help minorities acquire failed S&Ls and branches of failed S&Ls that are located in predominantly minority neighborhoods.
Because of our highly successful programs, 42 banking facilities sold by the RTC are minority owned and serving minority neighborhoods. We are fully committed to this effort.
The focus of your story - unhappiness with our loan pricing - arises because the RTC helps facilitate the acquisition of deposits by offering an option to minority acquirers so they may obtain earning assets in sufficient volume to offset the core deposits purchased.
The sale of these loans is noncompetitive and not intended as an additional purchase subsidy for minority acquirers. The RTC is not authorized to sell its assets at less than market prices. A discount is what we believe those interviewed are seeking.
Market prices for the loans in question are determined by two RTC contractors who are themselves active in the loan markets and thus view their pricing methodology as proprietary and confidential.
Working independently of each other, the two contractors evaluate due- diligence data and establish prices for each individual loan that is made available to minority acquirers under the purchase option.
The loans are offered to the minority acquirers at the average of the two market prices developed by the independent contractors. These averages are in line with current market conditions.
At the time of the S&L deposit purchase, the minority acquirers are provided cash to offset the purchase deposits. They are free to use that cash to purchase loans elsewhere in the market if they believe the RTC prices on optioned assets are too high.
Further, to ensure that minority acquirers are not disadvantaged, the RTC has agreed to pay them interest equivalent to what they would earn on the optional loans during the review period even if they decline to exercise the option. The RTC believes these arrangements to be eminently fair and reasonable. The minority acquirers interviewed suggest that the RTC should accept prices set by First Tennessee Capital Assets Group, the investment firm advising Financial Consultants Inc., a consulting company retained by a number of the minority acquirers under these arrangements are often calculated as a percentage of the "profits" from the resale of loans acquired from the RTC.
The RTC will not sell assets in a noncompetitive environment at prices set by the buyer or anyone else with a financial stake in the purchase. To do so would violate our mandate to maximize returns for the taxpayer by seeking market prices. Stephen J. Katsanos Director, office of corporate communications, Resolution Trust Corp.