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Remarks by

L. William Seidman
Federal Deposit Insurance Corporation


SMU Business School
Dallas, TX
October 19, 1989



Good afternoon, ladies and gentlemen.

It's a pleasure to be

with you today.

you know,... seeing this big crowd reminds me of the time that
Winston Churchill was asked if he didn't get impressed with
himself because the crowds were so large for his speeches.

C h u r c h ill said, "No, every time it starts going to my head, I
remind myself that, if instead of making a speech I was being
hanged, the crowd would be twice as big!”

That story has a certain ring of truth for me here in Dallas.
You see, I get a lot of fan mail from Texas.

Some of it I wouldn't read in polite company, but the general
gist of it goes something like this---Keep Your Cotton Picking
Paws Off Our Financial Institutions, Expletive Deleted —
Expletive Deleted!

We are aware that the Texas economy has had its troubles, and as
bank liquidators, things sometimes get tense when the situation
is bad.

How bad has it been?

During my 4 year "watch" at the FDIC:

— 348 Texas banks failed representing 45 percent of all failed
banks in the country during this period.

But that still leaves

you with-almost 1400 more or less viable banks.

The good news

is that's still more than the rest of the free world combined!

— Failed Texas banks had $73 billion in assets representing 81
percent of failed bank assets handled during this period.

— FDIC outlays totalled $12 billion for Texas failures or 56.6
percent of all outlays.

— FDIC cost for failed banks in Texas over the four year period
is $9.3 billion, or 67 percent of all cost the Corporation

In Texas we sort of feel like we've been playing leap frog with
a unicorn!

But I didn't come here today to talk about problems of the

I want to talk about the future —

what the FDIC and RTC

are going to be doing in Texas in tjie next few years.

-3Our job over the next few years in this fine state will not be


Here's a glimpse of what we will be up to:

We'll be supervising your state nonmember banks —


increasing reliance on your outstanding Commissioner Ken
Littlefield and his excellent staff.


We'll be supervising and selling our inventory of FDIC

assets, with over $3 billion from banks that failed right
here in Texas.

Add to that assets being handled by NCNB out of the old
First Republic, you get another $5 billion in assets for

We also estimate that another $6 billion of assets at

book value, and perhaps 3 billion at market value, will be
for sale as a result of the MCorp, TAB, and NBC


We'll be supervising and selling Old FSLIC assets in

Texas —

real estate asset from failed thrifts total $1

billion in Texas.


We'll be policing $57 billion of income maintenance

contracts covering real estate with 3-7 year contracts.
billion of those covered assets came from failed Texas

Some of these assets may be reclaimed for sale

soon, but all will eventually have to be sold.



We'll provide backup regulation for Texas's 127 thrifts

in coordination with the Office of Thrift Supervision.


We'll be running the RTC, which has 75 Texas thrifts in

its conservatorship program, with over $33 billion in

Over the next three years we'll be handling as

many as another 110 to 120 thrifts in Texas.

Out of the

$100 billion in problem real estate the RTC may eventually
have to handle, as much as $25-30 billion will be in Texas.

That gives a grand total in Texas of over $60 billion in assets.

By the way, included in the assets is the FDIC's 12 percent
interest in the Dallas Cowboys.

I'm sure we'll do well with

this asset since, like the Cowboys, the FDIC always seems to
attract the best in Monday morning quarterbacks.

Come to think

of it, maybe we will give the RTC Oversight Board this one to

Jack Kemp used to have a pretty good throwing arm!

In addition, we are mandated by Congress to liquidate the
Federal Asset Disposition Association, or FADA.

As you may of

heard, recently we put FADA up on the auction block, and have
already received over 250 inquiries.

I am pleased to announce

that we are now offering for separate sale a package of $428
million in real estate that was managed by FADA.

It is half

located in Texas, with the rest in California, Colorado,
Arizona, and Florida.


This block is composed of 150 pieces of property.
Texas alone 82 pieces are for sale.

In fact, in

If we can we want this to

be a bulk sale, so get a partner for the assets in other states
if you want to bid only for Texas properties at this time.


is the first time we have tried to use a block of real estate as
a package, and we hope to attract new capital to the real estate
always —

So please get out your check books, but be clear —


the FDIC will not accept bids below current


As you can see, the FDIC is very much involved in the real
estate business —

as they say, we are now neck deep and


The new legislation provides some sales guidelines.
the RTC to sell property in distressed areas —
at or above 95 percent of market value.

It requires

such as Texas —

In all geographic

areas, the RTC will employ orderly marketing strategies, and
will avoid techniques that dispose of assets at any price.


is, "no dumping.”

Thus, we plan to continue our policy that everything is for
sale, but not at any price, at least until the RTC Oversight
Board decides another approach is more appropriate.

Whether to

sell or hold these properties has been one of the most
politically charged issues of this entire debate.
that's the question —

and it reminds me of what Woody Allen

once said to a commencement class:

Sell or dump



"More than any other time in history, mankind faces a

One path leads to despair and utter hopelessness.

The other lead to total extinction.

Let's pray we have the

wisdom to choose correctly!"

My bet is that the RTC will take Woody's advice and make the
correct choice.

For those of you who are particularly concerned about the supply
available, I would like to put your minds at ease ---- at least

I've told you about what we will have for sale

over $60 billion in Texas alone.

But the RTC won't be adding

billions of dollars worth of Texas real estate to the market
place tomorrow or next month or even much next year.

That's because the RTC doesn't have billions of dollars worth of
Texas real estate ready for sale now.

The majority of the

property we are talking about today is tied up as collateral on
loans, or it's tied up in income maintenance contracts —


provide owners several years income before it can be sold.

Even in cases where theoretically we could sell, it may take
upward to a year just to gain clear titles.


of the $60 billion I mentioned, over $40 billion is not

available at the present time.

All you people who think RTC

sales are going to depress property values further —


It's going to be awhile.

As a matter of fact, one of our toughest short-term tasks is
coining up with an asset inventory for the new RTC by years-end.

We are working hard right now so the market will know what is
for sale.

One thing is abundantly clear so far —

running the RTC will not

prove the most popular or easiest job in town.
already lining up to look over our shoulders.

And people are
The RTC —

I sometimes call it, "The House of 1000 auditors" —

or, as

will be, I

believe, the most heavily audited agency ever created.

GAO, 2 Inspector Generals, the RTC Oversight Board, 0MB, and the
House and Senate Banking Committees will all be looking over the
RTC's shoulders.

We'll be busy —

and we'll keep the auditors busy too.

Take the review of the 1988 FSLIC deals —
’’December" transactions.

the so-called

The RTC is required to evaluate the

cost of these 94 agreements and document its analysis and
findings for the public.

Where necessary, it will review each

bidding process to insure that it was sufficiently competitive.



IAnother primary goal will be to look for ways to reduce
agreement costs where possible, including restructuring the
-agreements when necessary.

We plan to hire private sector groups to help facilitate a more
timely and impartial review.

We hope to have these reviews

completed within nine to 12 months.

Since many of these are in

Texas, we'll need lots of private sector help.

If you want more

details on this review, let us know.

One of our most pressing problems right now is how to fund our
resolutions —

by fund I mean obtain working capital in business

school terms.

The new legislation provides the RTC with $50 billion.

We estimate it will take at least that much to cover the
insolvent thrifts' net loss when we are all finished.

$50 billion won't provide enough to cover the funds needed for
working capital.

The question is —

We'll have to borrow that.

Who do we borrow from to provide the working


The problem is one of short-term costs needs, not long-term

Cash is needed while assets are being disposed of.


additional working capital will be repaid as assets are sold.

-9We and the RTC Oversight Board will develop policies on how such
working capital will be raised.

In doing so, the Oversight

Board wid.1 have to address legitimate concerns in Congress and
elsewhere over whether the financing will be on- or off-budget,
and whether adequate safeguards are in place to ensure that such
financing cannot be used to increase the costs to taxpayers.
However, policies on financing working capital must be put in
place soon if the RTC is to be able to continue to
restructure insolvent S&Ls.

As you can see, the FDIC-RTC will be very much a part of the
Texas financial system for some time to come.
work together on the problems at hand —
said of the American revolution:

We really must

for, as Ben Franklin

"We must hang together or we'll

all hang separately."

We look forward to participating with you in the new and
improved Texas of tomorrow.

Thank you.