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TESTIMONY OF L. WILLIAM SEIDMAN CHAIRMAN RESOLUTION TRUST CORPORATION ON REVIEW OF THE 1988 ASSISTANCE AGREEMENTS BEFORE THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS UNITED STATES HOUSE OF REPRESENTATIVES 9:30 A.M. SEPTEMBER 14, 1990 ROOM 2128 RAYBURN HOUSE OFFICE BUILDING Good morning, Mr. Chairman and members of the Committee. We appreciate this opportunity to testify on the Resolution Trust Corporation's cost evaluation and cost reduction review of the so-called *88 Assistance Agreements. The RTC's report is due to be completed and presented to the RTC Board next week. Since the final draft of the report is not completed, I can only present the Committee with the information I have at this time. It should be noted that our efforts are to minimize costs to the government within the provisions of the contracts. We are not considering breaking the governments agreements. The report will incorporate the summary of the findings by outside contractors after review of the '88 Assistance Transactions. The primary options for savings for the government in these contracts are: (1) the net worth notes; (2) covered assets loss and yield maintenace supports; and (3) tax benefits. The report will reflect options by which the government can realize savings thru prepayment or renegotiation of the various contracts. 2 By way of background, Section 501(b)(11)(b) of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) requires that the RTC: (1) review and analyze all insolvent institution cases resolved by the FSLIC between January 1, 1988, and the date of enactment of FIRREA, and actively review all means by which it can reduce costs under existing FSLIC agreements relating to such cases, including restructuring such agreements; (2) evaluate the costs under existing FSLIC agreements with regard to capital loss coverage, yield maintenance guarantees, forebearances, tax consequences, and any other relevant cost considerations; (3) review the bidding procedures used in resolving such cases in order to determine whether the bidding and negotiation processes were sufficiently competitive; and (4) report to the Oversight Board and the Congress the results and the conclusions of the review. Item 3 will be the subject of a second, separate report which will be presented to the Oversight Board and the Congress in early November. It will consider whether there are legal 3 grounds for change outside of the contract provisions. While the RTC's review is well underway, the volume of records requiring review in order to develop a complete understanding of the bidding process requires further time. We believe the process emanating from this first report can move forward while the second review proceeds. Here is how this first review was conducted. Independent accounting firms, law firms, investment bankers and consultants were hired. The report outlines the steps undertaken by each contractor to arrive at their cost estimates and their cost reduction options for each assistance agreement. (A list of the contractors participating in the study and the agreements reviewed by each are attached.) The report includes general information about the FSLIC Assistance Agreements. Each of the agreements subject to our review is identified, and common terms used throughout the report are defined. It discusses the use of, and the costs associated with, each of the more common types of assistance granted by FSLIC including: (1) cash; (2) promissory notes; (3) capital loss coverage; (4) yield maintenance guarantees; (5) indemnities; (6) forbearance; and (7) tax benefits. The context in which each of the assistance agreements was entered into will be reported in RTC *s separate report on the bidding and negotiation process. RTC Review of 1988 FSLIC Assistance Agreements Contractors Role Price Waterhouse (CPA's) Donovan Leisure, Rogovin, Huge & Schiller (Atty's) Packages A , C Sc (plus 4 from F) Coopers & Lybrand (CPA's Arter & Hadden (Atty's)* Package B Kenneth Leventhal & Company (CPA's) Arter & Hadden (Atty's)* Kelly, Drye & Warren (Atty's)** Package D (plus 2 from F) (plus 3 from H) McGladrey & Pullen (CPA's) Thacher Proffitt & Wood (Atty's)* Danielson Associates Inc. (Consultants)* Mabon Nugent & Co. (Inv. Bankers)* Package E (plus 3 from F) (plus 9 from H) Mid America Institute for Public Policy Research (Consultants) Smith Breeden and Associates (Consultants)* Cooter & Gell (Atty's)* American/New West Transaction (From Package F) Steptoe & Johnson (Atty's) Outside Counsel Review of Bidding and Negotiation ProcessSouthwest Plan Agreements Baker & Hostetler (Atty's Outside Counsel Review of Bidding and Negotiation Process-Conventional Agreements Sub Contractor Sub Contractor - First Nationwide only G Attachment I Package A A cm »ifinn Entity Location First Gibraltar Bank F S B Houston TX Metropolitan F S B Fargo ND California F SLA Metropolitan FB ol Iowa Noiihwest F S B Los Angeles Mason City Spencer CA IA IA Standard F SLA River Valley F S B Chicago Peoria IL IL Nivor Valley S B Rock Falls iL Citicorp Savings ol Illinois MidAmerica Fin. Corp. River Valley SB, a F S B First F SLA Chicago Waterloo Peoria Lincoln IL Ia IL NE ♦ Acquired Association Location First Texas Savings Gibraltar Savings Killeen S L Montlort Savings Home Savings Peoples S&LA (Owatonna) Washington FS&LA (Stillwater) First FS&LA (Hibblng) Pioneer FS&LA (Mason) First FS&LA (Bralnerd) First FS&LA (Grand Rapids) Broward FS&LA First Fin. S B ol D es Moines Home FS&LA Northwest FS&LA Capitoi Federal of America Mutual S&L Galva FS&LA Home FS&LA Republic FS&LA River Valley S&LA Glenn Ellyn S&LA, a FS&LA MidAmerica Fin. Corp. Peoria S&LA Rooks County FSA Dallas Houston Killeen Dallas Houston Owantonna Stillwater Brainerd Mason City Hibblng Grand Rapids Sunrise Des Moines Spencer Spencer Evergreen Park Canton Galva Peoria South Beloit Rock Falls Glenn Ellyn Waterloo Peoria Plainville Assets TX TX TX TX TX MN MN MN IA MN MN FL IA IA IA IL IL IL IL IL IL IL IA IL KS $2,904.7 0 $6,439.C) $148.71 $1,216.3 ) $497.1 ) $216.2 ) $307.9 ) $53.0 ) $318.6 ) $92.6 ) $107.3 I $532.1 ! $264.4 I $47.5 1 $130.0 I $237.6 » $34.2 » $13.9 i $128.5 » $39.1 $119.2 ' $ 7 1 .3 ' $252;0" $176.9H $32.1 ’ Acquired A ss’ns Total Assets $11,204.80 $1,095.70 $532.12 $264.40 $177.50 $237.60 $176.60 $158.30 $71.30 $252.00 $176.90 $32.13 Attachment I Package B Acquirinn Entity Location Sunbelt Savings. F S B Dallas TX Pacific Bank Tacoma WA Mocky Mountain Tin. Coip. Cheyenne WV Equity Bank for Savings Oklahoma City OK ciilsiiolni FSLA Kingfisher OK Jackson County, F SL A Atlantic Financial Federal Medford Bala Cynwyd OR PA Washington, F SLA Home FSLA First F S B Ametibank Lemon! F S B Washington F SLA Seattle Johnson City Longview Muskegon Lemont, Seattle WA TN WA Ml ÍL WA Acquired Association Multibanc SA Independent American SA First City SA Texana SLA Western FSLA Federated SLA Summit SA Sunbelt SA of Texas Community First F S American Home Savings Bank Rocky Mountain FS&LA United Savings Bank Capitol Federal Mutual Federal Sunbelt SLA Kingfisher SLA Jackson County FSLÄ Mountain State FSLA Traders FSLA Magnet Bank, F S B Freedom FS&LA Valley FS& LS First FS&LÁ of Longview Muskegon FSLA Citizens FS&LA Northwest FS&L Location Alice Irving Irving Texarkana Dallas Brady Dallas Dallas Vancouver Salem Cheynne Cheyenne Oklahoma City • Oklahoma City Watonsa Kingfisher Medford * Clarksburg • Parkersburg Charleston Corvallis Erwin Longview • Muskegon . East Alton • Boise Assets TX TX TX TX TX TX TX TX WA OR WY WY OK OK OK OK OR WV WV WV OR TN WA Ml IL ID $190. 0 $793. 0 $227. 0 $78. 0 $1,032.: 0 $150. 0 $202.1 0 $2,214.10 $387.( 3 $427 t 3 $309.; J $222.; 3 $123 ( ) $203.5 ) $43.< ) $124.1 ) $342.9 ) $91.4 ) $71.5 ) $547.1 ) $315.4 ) $87.5 ) $80.3 ) $205.5 ) $39.01 $27.5 ) Acquired A ss'n s Total Assets $4,889.10 $814.60 $531.50 $327.30 $167.40 $342.90 $710.00 $315.40 $87.50 $80.30 $205.50 $39.03 $27.30 Attachment I PackageC Aoatiirlnn Entity Location Southwest Savings Association Dallas TX Beverly Hills F S B First Heights, F SA Heights of Texas, F S B Mission Viejo Houston Houston CA TX TX Bittteriieid S L A Western FS&LA Santa Ana Marina Del Ray CA CA World S L A ol Ohio. F SLA Steubenville OH Old Stone Bank a F S B Western FSLA New Peoples F S B Home F SLA World SLA Providence Missoula Wooster Sioux Falls Oakland, Rl MT OH SD CA Acauired Association Location Stockton SA Brlercroft SA Lamar SA City SLA Beverly Hills Savings, a FS&LA Champion Allen Pk FSLA Heights SA Bay City F SLA Gulf Coast S&LA Butterfield. S&LA Bell S&LA Woslern Federal Savings First Border Savings Bank Ohio Valley S&LC Homestate SLA Great Falls FS&LA Peoples F SB United Federal S&LA Lynnwood S&LA Dallas Austin Austin San Angelo Mission Viejo Houston Houston Houston Bay City Richmond Santa Ana San Mateo Marina Del Ray Piqua Steubenville Hayward Great Falls Wooster Aberdeen Lynnwood i Assets TX TX TX TX CA TX TX TX TX TX CA CA CA OH OH ÇA MT OH SD WA $790 Í 0 $889.: 0 $2,004.! 0 Acquired A ss ns Total Assets $4,412.50 $727.1 0 $1,142.; 0 $é90.( 0 $86.( 0 $305.( 3 $173 ( 3 $61.( 3 $556.( 3 $953 ! ) $2,566.f ) $115.' Í $250 ( ) $190.< ) $118.7 ) $374.2 ) $96.C ) $25.C ) $1,142.70 $890.00 $625.00 $556.60 $3,520.30 $366.00 $190.20 $ i 18.70 $374.30 $96.00 $25.00 Attachment I ' Package D Olney Savings & Loan Olney First Nationwide Bank, a F S B Cimarron FSLA San Francisco Muskogee Statesman Bk for Savings F SB D es Moines Red River FSLA Lawton Hansen S B Barnett F S B Security First F SB Security Trust FSLA Virginia F S B Crossland Savings Bank First F S B & T R U ST East Brunswick Columbus Jackson Oak Ridge Richmond Salt Lake City Pontiac Acquired Association TX Pelroplex SA Heart O ’ Texas SA Southwest SLA Banc Home SA Security FSLA Olney SA Southern SLA First F SLA of Amarillo Odessa S A Shamrock F SB San Angelo S A CA Lincoln FS&LÀ OK Home S L of Bartlesville Phoenix FSLA IA 1ST Federated S B Perpetual S&LA Peoples FS&LA 1ST Federal S B OK Home SLA First FSLA Heritage SLA Peoples SLA NJ First FS&LA GA First F SLA of Columbus M S Frontier S&LA TN Commerce F S B VA Virginia Federal S&LA ÜT Reliance SLA Ml Citizens FSLA Location Midland San Saba Abilene Midland Pampa Olney Brownwood Amarillo Odessa Shamrock San Angelo Westfield Bartlesville Muskogee W. Palm Beach Waterloo Waterloo Waterloo Lawton Elk City Elk City Ardmore Hammonton Columbus Dyersburg Knoxville Richmond Rahway Jacksonville Assets TX TX TX TX TX TX TX TX TX TX TX NJ OK OK FL IA IA IA OK OK OK OK NJ GA TN TN VA NJ FL $140.' 0 $255 > 0 $278.! 0 $69M 0 $374 ! 0 $1,369. 0 $177.« 0 $239.: 0 $157.« 0 $114.: 0 $148.1 0 $1,253.1 0 $ 176.C 0 $437.? 0 $ 1 4 2 .0 $118.n $152 - ) $ 1 5 2 .0 $254.« ) $120.: ) Acquired A ss'n s Total Asseta $3,949.10 $1,253.80 $613.30 $566.40 $512.90 co Location a* Acauirina Entity $50.t 3 $245.5 3 $265.î 3 $46.: 0 $42.« 1 $ 6 8 9 .0 $67.( ) $62./ 1 $245.50 $265.73 $46.20 $42.94 $689.30 $67.00 $62.73 Attachment I Package E Acqtiirinci Entity Location Guaranty Federal Dallas Eureka F SLA Merabank of Texas, F S B San Carlos El Paso Merabank of Texas, F S B Coastal Banc SA El Paso Houston N V R Federal Savings Bank Eureka FSLA New Metropolitan F SLA First of Jacksonville Secor F S B First Federal S B Citizens Federal Bank First Tropical SB, F S B McLean San Carlos Hialeah Jacksonville Birmingham Hempstead Miami Santurce Acquired Association TX First F SLA of Austin Guaranty FSLA Delta F SLA of Texas CA Eureka FS&LA TX First Financial SA of El Paso Brownfield FSLA TX State FSLA of Lubbock TX Colorado County F SLA Alliance SA Cameron County SA Security SLA VA McLean S&L CA Stanford S&LA FL Beach FSLA FL South Florida Savings AL Coosa FS&LA TX First Svgs. of Brenham FL American Savings Bank PR Tropical FS&i-A Location Austin Dallas Alvin San Carlos El Paso Brownfield Lubbock Columbus Houston San Benito Dickinson McLean Palo Alto Boynton Beach Davie Gadsden Hempstead Springfield Miami Assets TX TX TX CA TX TX TX TX TX TX TX VA CA FL FL AL TX IL FL $1,052 ? 0 $1,791 ;o $200.t 0 $ 1 .6 7 5 .0 $315. 0 $39.( 0 $454.: 0 $228 ! 0 $98.(0 $20.(0 $105.10 $290 ! 0 $73 ! ) $1,060.C ) $128.£ ) $78.C ) $24.1 ) $970.E ) $62.E ) Acquired A ss'n s Total Assets $3,045.20 $1,675.10 $809.20 $461.80 $298.50 $73.50 $1.060.00 $128 20 $78.00 $24.10 $970.50 $62.50 P ackage F Acquit inn Entity Location New West FSLA/American S B American Federal Bank, F S B Stockton Dallas Æ Local America Bank ol Tulsa Acquired Association " CA TX Tulsa 1 c " . OK Texas Tiust SB, F S B Llano D " TX First Network Savings Bank First FS&LA Los Angeles * 0 ? C A Lincoln NE Soulhside SB, F SB Home F SLA Home Federal SLA Hillsboro Rockford Rockford Craig G Great West Savings Bank, F S B OH IL IL * G " CO m m " f American Savings, a FS&LA Commerce FSLA Majestic S A Southland SLA Irving S A Ben Milam SLA Paris SLA Longview SLA American Banc SA Mercury S A of Texas Skyline SLA Gladewater FSLA Richardson SLA First Okiahoma SB, FA MldAmerlca FSLA Burnet SLA Peoples SLA Lee Savings Assoc. Ranchers Savings Assoc. Tahoe S&LA, a FS&LA First Federal Bank, FSB Western FS&LA The South Side S&LA First F SLA Loves Park F SB First FS&LA Location Stockton Commerce McKinney Longview Irving Cameron Paris Longview Dallas Wichita Falls Dallas Gladewater Dallas Tulsa Tulsa Burnet Llano Gidding9 Johnson City South Lake Tahoe Shenandoah Council Bluffs Lima Freeport Loves Park Craig Assets CA TX TX TX TX TX TX TX TX TX TX TX TX OK OK TX TX TX TX CA IA IA OH IL IL CO $ 3 0,142.0 $30 ) $290.( ) $31.‘ ) $ 5 3 .0 $156.7 ) $254.1 ) $149.9 ) $63 0 ) $332.9 ) $118.7 ) $27.2 ) $707.8 ì $37.4 ) $448.7 1 $29.0 > $59.0 • $69.0 ' $165.0" $46.7" $127.0 $27.0 $57.51 $30.8» $42.4! $30.3» Acquired A ss'n s Total Assets $30,142.00 $2.217.20 $486.10 $322.00 $46.70 $154.Ì4 $57.50 $30.80 $42.42 $3030 Acquired A s s'n s Acqtiírina Entity Location United S A ot Texas, F S B Bluebonnet Savings Bank Houston Dallas Superior Bank, F S B Pacific Southwest Bank, F S B Home FSLA Sterling Savings Association First Cook BK lor Savings, F S B First F S B Fiagshlp FslÄ Republic SB, F S B First Western SA Tracy Savings Bank Countryside Corpus Christ! San Diego Spokane, Chicago Rogers San Diego Louisville Las Vegas Tracy TX TX IL TX CA WA il AR CA KY NV CA Acquired A ssociation Location United Savings Assoc, ol Texas Home SLA NorthPark Savings Assoc. Interwest Savings First Western SLA Mesquite SLA Lamesa FSLA Vista Savings Southern Federal Bank Hi-Plains SLA Metroplex FSLA Reliance Savings Sentry Savings Commodore Savings Assoc. First Federal SLA Mineral Wells SLA Lyons Savings FS&LA First Federal SLA Independence SLA Union SLA Yoakum FSLA Charter SLA Bayvlew Federal SLA Seguin Savings Assoc. Keystone SLA First Security a FSLA Cal America S&LA, a FS&LA Columbus S&LA Tri-Cities S&LA Cook County First American S&LA t First F S B Flagship FS&LA First FSLA of Mayfield Eastern Washington S&LA Adobe Savings Bank Houston Lulkin Richardson Fort Worth Colorado City Mesquite Lamesa Odessa Lancaster Hereford Hurst Houston Slaton Dallas Big Spring Mineral Wells Countryside Luling Gonzales Goliad Yoakum Corpus Chrlstl Corpus Chrlstl Sequin Lampasas Pleasant Hill Walnut Creek San Ralael Kennewick Chicago Oak Brook Rogers San Diego Mayfield Wenatchee Concord • A sse ts TX TX TX TX TX TX TX TX TX TX TX TX TX TX TX TX IL TX TX TX TX TX TX TX TX CA CA CA WA IL IL AR CA KY WA CA $4,5B6.( 0 $281-( 0 $12610 Total Assets $4,586.00 $1,799 IO $102.1 0 $86.( 0 $47.( 0 $ 8 8 /0 $ 1 2 7 .(0 $89.1 0 $47.( 0 $64.1 0 $34.( 0 $87.( 0 $462.( 0 $126.( 0 $31.CO $ 1 .5 3 0 X 9 $1,530 00 $30X3 $Ì,Ò 1 4.2 Ó $65.e ) $88 3 ) $44.9 ) $526.2 ) $74.9 ) $148.4 ) $35.1 ) $177.2 ) $574.10 $171.1 ) $225.7 9 $54X9 $54.50 $194 ; 9 $222 10 $27.Í 1 $120.1 ) $120.00 $9 8 X I $96.91 $64.' 3 $64.40 $51.1 3 $51.50 $46.' ) $46.40 Attachment 1 Package M a m nuirlnn Entity Location st Nationwide Fin. Corp. San Francisco'^)v C Ä nklin Federal Bancorp Austin artland F SLA lerlcity Federal Savings Bank M F S B of Indiana bnFSB pt Nationwide F S B Ponca City " 0 * OK Dallas l £ - i TX Merrillville 1 £ * IN Indianapolis " ¿f ” In San Francisco“, * " C A M Federal Bank erican S B F S B >/• Ion F S B led Savings ol Amer. bed Savings ol America Vincennes New Castle Frankton Chicago Chicago » •£ * ** £ * 8£ H 1 £ " ,% £ I TX IN IN IN IL *' £ | It Acquired Association Location Columbia Savings Pathway Financial Mile High FS&LA Cardinal Federal Savings Bank Franklin S A Great West S B Creditbanc Frontier SLA Tesodo SLA Capital Arsenal SA First Dearborn. FA Bloomfield S&LA, FA United SA Citizens FSLA Franklon FS&LA Fidelity FS&LA 1ST FS&LA of Taylorvllle Englewood Chicago Denver Cleveland Austin Austin Austin Ponca City Laredo Gary Indianapolis Dearborn Birmingham Tipton New Castle Frankton Taylorvllle Taytorvllte v , Assets CO IL CO OH TX TX TX OK TX IN IN Ml Ml IN IN IN IL IL ’ ( $3.099 0 ) $1.244.0 ) $2,359.0 ) $1.477.0) $616.5) $203.7 ) $668.7 ) $1.086.9) $294.2 ) $56.0 ) $168.6) $192.9 1 $607.2 ) $60.9 Î $53.7 1 $30.4 1 $40.0 ) $36.4 t Acquired A s s 'n s Total Assets $8.179 00 $1.488.90 $1.088.90 $294.20 $58.00 $168.60 $800.10 $60.90 $53.70 $30.40. $40.00 $36.40
@FedFRASER