Hobart Rowen was critical of the profit made by the investors in the FDIC-assisted takeover of the Bowery Savings Bank in New York City {"A Bad Bank Bailout," op-ed, Oct. 15}. He concluded it would be preferable for the government to take over and operate failing banks and thrifts rather than risk giving private investors a potential for substantial profits. Both his facts and his conclusion are wrong.

First, the facts. The Bowery was a deeply troubled bank. If its assets had been marked to market in 1984, its net worth would have been on the order of a negative $1 billion. Moreover, it had begun to gamble on some very high-risk investments of the sort that have created huge losses in the S&L industry.

The FDIC responded by taking prompt and forceful enforcement actions and by soliciting bids on the Bowery from major financial institutions throughout the country. More than a year of shopping the Bowery produced little investor interest. One large bank was willing to take it over if the FDIC would contribute $750 million.

An investor group led by Richard Ravitch proposed a substantially less costly deal. The FDIC negotiated with the Ravitch group for about nine months, rejecting at least three or four proposals. The Ravitch group kept coming back with lower cost proposals until finally it submitted one that was less than half the cost of the next best bid or the estimated cost of liquidating the Bowery.

The FDIC was offered a piece of the Bowery, but turned it down. It was felt that FDIC ownership of all or some of a bank should be avoided unless there were no good alternatives (as with Continental Illinois). An ownership position is in conflict with the FDIC's regulatory responsibilities, is resented by competing institutions that pay the cost of operating the FDIC and is contrary to free-market principles. Moreover, one need look no further than the debacle in the S&L industry to see how much money can be poured down the drain when the government takes control of private businesses.

In lieu of the ownership piece, the FDIC bargained for, and received, an agreement by the Bowery to make quarterly payments to the FDIC for 15 years if interest rates on the Bowery's liabilities declined below the yield on its assets. These payments will fluctuate with interest-rate levels, but they have recently been running about $4 million per quarter. At current interest-rate levels, the estimated present value of these payments exceeds $100 million. This arrangement is obviously worth substantially more to the FDIC than 20 percent of the Ravitch group's $100 million profit would have been. And, most important, the arrangement avoids the public policy pitfalls inherent in an equity stake.

The FDIC believed and hoped the Ravitch group would make a profit. That, after all, is the foundation of the free-enterprise system and is what will bring other bidders to the table in future deals. The Ravitch group doubled its money in two years (four years would be more normal in deals of this sort) because it managed the bank well, because interest rates declined very significantly and because of the rapid push toward interstate banking, which made the franchise more valuable.

There will always be armchair quarterbacks who will argue they could have fashioned a better solution to a problem. Perhaps Hobart Rowen could have done so in the case of Bowery. But if his solution would have involved a further and totally unnecessary nationalization of our financial system, I'm delighted he's a journalist and not head of the FDIC. -- William M. Isaac The writer is a former chairman of the Federal Deposit Insurance Corp.