Failure Glut Creates a Buyer's Market
Albert, Andrew, American Banker
WASHINGTON -- Once hot items, failed banks and savings said loan associations could be losing their appeal in the marketplace.
Federal authorities say they're finding it somehwat more difficult to dispose of fallen institutions by selling their remains to expansion-minded companies.
Indeed, these growth companies are still enticed by failed banks and S&Ls that are generally available at bargain basement prices. But because of the growing number of failures in recent years, industry experts say closed banks and thrifts are no longer the rare commodities they used to be. As a result, would-be buyers are getting more selective -- and more stingy -- when bidding for defunct banks and thirfts.
Robert Miailovich, assistant director of the Federal Deposit Insurance Corp.'s division of bank supervision, said, "We've seen fewer bidders and lower bids."
The failed-bank market was especially flooded in 1984, when 79 banks failed--the most since 81 were shut in 1938. In all but four of the 79 cases, the FDIC was able to arrange for a healthy institution to take over the failed banks' deposits. The FDIC was forced to dole out $316 million in deposits to customers at the four banks where takeovers could not be arranged.
And with a record 847 institutions on the FDIC's list of problem banks at yearend, the glut of defunct banks is not likely to go away soon. A depressed agricultural economy as well as isolated cases of weak management were largely attributable to the surge in bank and thirft failures last year, experts said.
Despite the rising number of troubled banks, FDIC Chairman William M. Isaac predicted last month that the number of bank failures in 1985 should decline from the 1984 level. He cited the agricultural banking sector as the most troubled and said the number of problem banks outside the Farm Belt was declining.
In the savings and loan industry, S&L shoppers were even more selective. Last year, 27 associations were either closed or merged out of existence by the Federal Savings and Loan Insurance Corp. -- down nearly half from the 52 thrifts that vanished in 1983. In 1982, 71 S&Ls disappeared through supervisory action.
Of last year's 27, FSLIC officials were forced to completely close nine whose assets were too deteriorated to attract willing buyers. (Six were shut down in 1983). Five of last year's nine thrift failures were Tennessee associations, whose deposits were transferred to New Federal Savings & Loan Association, an institution created by the Federal Home Loan Bank Board for rescue purposes.
Three of the failed Tennessee S&Ls were based in Knoxville and had made questionable loans to companies associated with the now-crumbled banking empire of Jake and C.H. Butcher. They were Knox Federal Savings and Loan Association, American Savings and Loan Association, and East Tennessee Federal Savings and Loan. The two other defunct Tennessee thrifts -- John Sevier Saings and Loan Association, Sevierville, and savannah Savings and Loan Association, Savannah -- were said to be closed last year as a result of poor loan underwriting practices but not because of any direct lending to Butcher affiliates.
In addition to the nine S&Ls that were closed outright, another 18 thrift institutions were merged into um healthier institutions during 1984. That compares to the previous year's 33 assisted-merger transactions involving 46 ailing associations. The FSLIC said its financial assistance for those mergers totaled about $218 million in 1984.
In seven of the 17 assisted-merger cases, the FSLIC was forced to go out-of-state in order to find institutions that were able and willing to take over the ailing associations.
Thrift industry experts say failed S&Ls could become less and less attractive to buyers because so many institutions are being wiped out by decaying assets, rather than the interest rate squeeze that was so prevalent during the previous three years. …