U.S. Gets Some Cash From Failed Thrift

The federal government, which poured $5.4 billion into failed American Savings & Loan, has recouped $665 million by selling its stake in the Irvine thrift’s successor.

The Federal Deposit Insurance Corp. said Thursday that it sold 14 million shares in Washington Mutual Inc., which acquired the reconstituted American Savings Bank last month.

The sale closes a major chapter on the nation’s thrift debacle of the 1980s. American S&L; became the nation’s costliest thrift failure as regulators had to cover losses that grew from $1.7 billion to $5.4 billion.

Altogether, the government spent $160.1 billion in mostly borrowed money to clean up the thrift industry. With interest, the cost to taxpayers will be $480.9 billion, according to a government report.

The FDIC said it will use the money from the stock sale to recover some of the losses at American S&L;, once the nation’s largest thrift with more than $30 billion in loans and other assets.

The government’s stake had gained $245 million in value since the American-Washington Mutual deal closed Dec. 20. At that time, Washington Mutual stock was selling at $30 a share. Late Wednesday, the FDIC sold its stake to two underwriters for $47.50 a share.

The underwriters began selling the stock Thursday, pushing Washington Mutual’s price up $1.50 a share to close at $50 in Nasdaq trading.

In late 1988, regulators were criticized for pledging $1.7 billion to help an investor group led by financier Robert M. Bass of Fort Worth, Texas, take over the good loans and other money-earning assets of American S&L.; The Bass group put in $350 million of its own money, and the government, in a rare move, carved out a 35% stake for itself should Bass sell the thrift, as expected.

Lawmakers complained loudly that the Bass group hadn’t put in enough and that regulators pledged too much. But regulators countered that it was the best deal possible and that closing the thrift would have cost even more.

American Savings Bank, under Bass and with industry veteran Mario J. Antoci as its chairman, thrived. It became the state’s second biggest mortgage lender and cearned a name for itself as a major lender in poorer and minority neighborhoods.

The Bass group ended up with Washington Mutual stock valued at more than $900 million.

December’s sale nearly doubled the size of the Seattle-based thrift, now the nation’s fourth largest S&L; operation with $43 billion in assets. And Washington Mutual executives have said they want to double the size again with more acquisitions in California.

Speculation centered mainly on Great Western Bank in Chatsworth, the nation’s second-largest thrift.

But after reports Wednesday that Washington Mutual might be near an agreement with Coast Savings Financial Inc. in Los Angeles, the stocks of mid-size thrifts began to climb.

Downey Savings & Loan in Newport Beach, for example, saw its stock rise $2.625 a share--or 13%--to close at $22.125 Wednesday in heavy New York Stock Exchange trading. The price dropped back slightly Thursday to close at $22 a share.

The New York Stock Exchange asked for an explanation for the big hike, but Downey had none.

“Everybody’s feeling good about financial institutions in California again and people feel comfortable that interests rates aren’t going to go up for awhile,” said Downey’s president, Stephen W. Prough. “I think they’re seeing consistent, continuing earnings, and that’s helping the market price.”

But industry analysts said Thursday that investors are looking more favorably at West Coast financial institutions because they see more consolidations coming.

“Washington Mutual can’t take on the big one and the thinking is that it will swallow a number of smaller ones,” said Campbell K. Chaney at Sandler, O’Neill & Partners in New York. “Washington Mutual’s hunger won’t be satisfied with just Coast Savings.”