The Bush administration disposed of $15.4 billion worth of savings and loans yesterday and proclaimed that it had surpassed its goal of reducing the vast backlog of failed thrifts by selling and shutting down 155 in three months.
It was the largest liquidation of financial institutions in the nation's history, but only the first step in a cleanup that is expected to cost at least $300 billion and take a decade or longer.
All of the institutions involved were insolvent and many were sold in parts, leaving the government with large amounts of property and other assets that still must be disposed of.
Of the 155 thrifts, 15 were sold or shut down yesterday, including CenTrust Savings of Miami -- the target of a major criminal investigation -- and Gibraltar Federal Savings and Loan, a $6 billion thrift with offices in California, Washington state and Florida.
Working at a frantic pace, federal officials pushed past the goal set by Federal Deposit Insurance Corp. Chairman L. William Seidman, who was greeted with considerable skepticism when he vowed to "resolve" -- as regulators like to put it -- more than 141 thrifts between April 1 and June 30.
Until Operation Cleansweep, as Seidman called it, the FDIC and its sister agency, the Resolution Trust Corp. (RTC), had managed to dispose of only about 50 thrifts since the S&L cleanup bill was signed by President Bush last August.
As of last night, 207 S&Ls with assets of about $50 billion had been either sold or shut down since the signing. But the government still is running 257 bankrupt thrifts -- only five fewer than it had last August -- because institutions have been failing almost as fast as the government can clean them up.
Seidman, who is recuperating from a broken pelvis suffered when he was thrown from a horse 10 days ago, issued a statement saying: "The RTC has made significant progress in reducing the backlog of government-subsidized insolvent thrifts competing against privately owned institutions."
But industry experts say there is much more to be done.
Many of the "resolutions" were very limited in scope, because the RTC only managed to get rid of the valuable offices and deposits, but was left holding a mountain of assets, including repossessed office buildings, vacant shopping centers, real estate developments that are no more than lines on maps and loans that aren't being paid on time.
The RTC is "just deferring the problem," said Richard Kneipper, a lawyer with the Dallas office of Jones, Day, Reavis & Pogue.
"The bottom line is, this is a solution that is not resolving the problem," he said. Despite claims that the RTC has sold nearly 141 thrifts, Kneipper noted, it sold the valuable assets and kept the rest. "I really don't know if they did any good or not."
A high-ranking member of the RTC's Atlanta division, which covers 23 states and Puerto Rico, concedes the agency is "getting the numbers up by transferring deposits. We aren't selling much in the way of assets."
"I don't call that resolution," Kneipper said.
Because some of yesterday's sales were still being completed last night, final details of the day's work were slow in coming. As of yesterday morning, the RTC had sold 69 thrifts to new owners, transferred the deposits of 53 to other financial institutions and paid off the depositors of 18 associations. The transactions included 30 in Texas, 17 in California, 10 in Illinois and nine each in Kansas and Louisiana.
Even in the institutions that were sold, however, the buyers took only what they wanted and left the rest to the government. The RTC allowed acquirers to pick and choose from the assets of the S&Ls. For the most part, all they wanted was the depositors' business and the branch offices.
These were unusual sales because in every case the buyer received a bigger check from the government than it wrote to pay for the purchase.
None of the S&Ls involved had have enough cash and other assets to meet their liabilities and pay off depositors. To make up the difference between assets and liabilities, the RTC had given the purchasers about $29 billion of the taxpayers' money, not counting yesterday's transactions.
How much of that money the government can get back depends on how much it can salvage from the bad assets it has kept.
"The asset side is where the war is going to be won or lost," said John G. Aldridge, an Atlanta lawyer who specializes in working out bad real estate deals. But on this front, the RTC has barely begun to marshal its forces. It hasn't sold any significant amount of bad assets. Until that process is completed, no one knows the cost of the cleanup.
"By selling only branches and deposits, the government continues to shoulder the burden of all the bad assets," said Karen Shaw, a Washington banking consultant. "As the market has unequivocally told the RTC, most of these assets aren't worth much and selling them will be a prolonged, expensive process."
Seidman said that now that the RTC had jump-started the cleanup, it would continue to "resolve" 50 to 75 savings and loan institutions every three months.
Yesterday's biggest transaction was the sale of Miami's scandal-plagued CenTrust Federal to Great Western Bank, a Beverly Hills, Calif., savings bank, in a deal that is expected to cost taxpayers $1.7 billion.
Great Western paid $86.3 million for CenTrust's 71 branches and $5.2 billion in deposits, and also tentatively agreed to buy $3.3 billion of its assets. Great Western, however, has the right to look over the assets and make the government take back anything it doesn't want.
CenTrust is the target of a federal criminal probe, a Securities and Exchange Commission inquiry and a congressional investigation into its dealings with junk bond king Michael Milken and the bankrupt securities firm Drexel Burnham Lambert Group Inc., as well as with Charles Keating's Lincoln Savings and Loan.
In the day's other big deal, Security Pacific Corp., the holding company that owns Security Pacific National Bank of Los Angeles, purchased the Gibraltar Federal operations in Simi Valley, Calif., and Bellevue, Wash., and a group of branches in Florida in transactions projected to cost the government $627 million.