Word: thrifts
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...visual testimony to the success of CenTrust Bank, which grew out of near failure seven years ago into the largest savings and loan in the Southeast (peak assets in 1989: $11 billion). But the building took on a gloomier symbolism last month when federal regulators seized the now insolvent thrift and ousted its top executives. As the Government conducts a bailout that could cost $2 billion, federal agencies are investigating David Paul, 50, the CenTrust chairman who presided in grand style over the thrift's rise and fall. Paul, says Florida's top banking regulator, treated CenTrust...
...moved to New York City when he was a youngster, Paul returned in 1983 as a little known real estate developer with a $52 million offer to buy the faltering Dade Savings and Loan (assets: $2.2 billion). State regulators were happy someone was willing to take over the sick thrift. Paul renamed the S&L and within a few years sent its profits zooming. His method: investing CenTrust's assets heavily in junk bonds, many of which he bought from Michael Milken at Drexel Burnham Lambert. By the late 1980s the payoff from CenTrust's $1.35 billion portfolio of junk...
...costs of the bailout, sluggish disposal of the real estate could help push the total cost of the rescue to more than $300 billion during the next 30 years. "The cost of carrying that stuff is going to kill you and me as taxpayers," says Richard Kneipper, a Dallas thrift lawyer...
...Many thrift experts attribute the near paralysis to the way Congress -- at the Administration's insistence -- split responsibility for the rescue between two groups. The RTC's operations are supervised by William Seidman, head of the Federal Deposit Insurance Corporation, an independent agency that polices the banking industry. But a separate panel called the RTC Oversight Board, which is chaired by Treasury Secretary Nicholas Brady, decides RTC policy and controls its funding. Congress agreed to give the Treasury a role so that the Administration would have a major stake in the bailout, but dividing responsibility has prompted feuding between...
While S&Ls own 7% of all junk bonds, depositors will be shielded from loss if a thrift runs into trouble because the Government insures deposits up to $100,000. But the junk-bond slump could increase the already enormous taxpayer cost of the Bush Administration's S&L bailout package (anywhere from $160 billion to $300 billion), since the Government will have to sell the securities at a loss...