Word: thrifts
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Dates: during 1980-1989
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Bass has thus managed to buy a huge, healthy S & L, complete with a network of 186 branches, for a relatively tiny amount of capital. More than half of his thrift's assets consist of another sure thing: a $7.8 billion loan to the "bad" S & L that is fully guaranteed by FSLIC to pay a handsome 2% more than the going cost of funds. That will pump some $160 million in annual interest into the Bass thrift, no matter how much trouble FSLIC has in getting rid of the bad assets...
...part of the deal, Bass was also rewarded with some $300 million in tax benefits. Taking those into account, Bass stands to make straight profits of $400 million to $500 million over the next four years, which roughly equals his original investment. To post those earnings, the thrift will have to be well managed. For that Bass has hired Mario Antoci, one of California's most respected thrift executives...
Bass's really big payoff will come if he decides to sell the thrift. One source close to the deal says that a profitable American Savings might fetch Bass a tidy $1 billion or more. Bass could conceivably still lose money on the deal if his thrift were to suffer losses, but that is almost an impossibility because it has been cleansed of its failing assets. Since FSLIC shoulders almost all the risk, the better Bass does, the less the deal will cost the Government. "We hope he makes a lot of money," says Bank Board member Roger Martin...
Besides rounding up all that cash, Bush proposes to reform the system that supervises the thrift industry and insures its deposits. The main regulatory agency, the Federal Home Loan Bank Board, which has been accused of being too chummy with thrift-industry leaders, will be replaced by one chairman who will answer to the Treasury Secretary. The exhausted Federal Savings and Loan Insurance Corp., which guarantees deposits, will be overseen by its healthier and better-staffed counterpart for the banking industry, the Federal Deposit Insurance Corp. Banks and thrifts have traditionally had separate regulators and roles: S & Ls specialized...
Moreover, financial consultants pointed out that the Administration was projecting the cost of the rescue based on the rosy scenario of a robust economy, declining interest rates and fast-growing thrift deposits. Over the next decade, taxpayers may have to shoulder rescue costs that are tens of billions more dollars than now expected. Yet even those who recognized the Bush plan's shortcomings praised it as the best and boldest solution...