After nearly a two-year lay-off, the RTC is up and running - and running fast. The RTC intends to ; resolve by midyear the remaining 63 thrifts holding nearly $20 billion in deposits in 23 states. bid meetings started in early January and will extend until midyear.
While resolving this many thrifts seems like a formidable tasks, it should be no problem for the Resolution Trust Corp.
Remember, this is the agency that resolved 268 thrifts and over $88 billion in 1991 alone. This is alos the agency that has been waiting two years for Congress to pass a funding bill to complete the S&L cleanup.
What is in store for this next and final round of bidding contests?
What to Expect
The following is a checklist of what interested buyers can expect:
* New P&A agreement. The most recent purchase and assumption agreement - the ninth version - is dated Dec. 25, 1993 (some Christmas presnet!).
MANY OF THE thrifts have attractive branch networks.
No major changes are in the new agreement from the prior version. Major provisions still include: the right to reprice certificates of deposit after 14 days, the option to purchase buildings at 93% of appraised value, and the option to assume leases on facilities and other contracts.
* Very little on the asst side. Few of the remaining thrifts have any loans left on the books. If you come across a thrift with some assets, you will probably have the option to take the loans, typically in pools, and would adjust your bid accordingly.
Loan pools are generally stratified with similar loans and priced as a percentage of book value of through a yield-pricing model. Most pools will include performing loans only (less than 60 days delinquent by RTC's definition). For most bidders, however, loans will be limited to share loans and overdrafts.
* Minority assistance. The
RTC funding bill provides capital assistance to minority groups in certain situations. But a minority institution or group must be the highest bidder to receive assistance.
If this situation exists, the RTC will provide capital assistance for up to two-thirds of the required capital. In cases where the branches are located in a predominantly minority neighborhood, free rent can be received for up to five years.
* Branches and more branches. Many of the remaining thrifts have substantial and attractive branch networks. These branches are perhaps the largest asset for the remaining thrifts. The RTC has made a concerted effort to offer branches on an individual basis or in relatively small clusters.
This gives all players, even the smallest banks and thrifts, an opportunity to participate. As noted earlier, facilities are offered to winning bidders at 93% of appraised value or an option to assume the lease.
* Competitive bidding. The average premium on deposits from 1989 to 1992 was about 2%. During this period, there were some sweetheart deals. Consider getting loads offsetting 70% to 80% of deposits, priced at less than book value, and in some cases, putback rights for up to 18 months.
Those days are long gone. While most of the deals last year were deposits only, premiums averaged over 5% of deposits. With the supply of failed thrifts dwindling, it's possible that demand will push premiums to even higher levels.
By June 30, all branches and deposits shudl be out of the government's hands. As the list of resolutions become public, they typical buyer profile likely to emerge might include the following:
The institution across the street looking to enter a new market may conclude that the benefits of reasonably priced real estate, along with acquiring a base of deposits and customers, will more than offset any premium. Also an institution with unlimited loan demand may be looking for relatively low-cost retail funding.
Over the past few years, the RTC has been criticized for costly and inefficient operations. From the beginning, its job was a no-win situation. The past two years of frustration are the epitome of how polities and economics don't mix.
There undoubtedly will be some surprises and a few deals that won't make sense. But one thing is for sure -- only a few months remain before the S&L bailout is history.