ATLANTA -- Nearly every day of the week, William M. Dudley, a career government executive drafted to help clean up the savings and loan mess, walks into his office on Peachtree Center Avenue and makes decisions that cost -- or save -- taxpayers millions of dollars.
One morning, Dudley and a committee of his top aides, meeting in Atlanta, had to decide what to do with the U.S. government's share of a shopping mall and luxury office project built in Denver with a $90 million loan from a now-defunct thrift in Philadelphia. Overvalued, the development stood basically vacant.
Dudley and his colleagues at an agency known as the Resolution Trust Corp. knew that just keeping the project open would cost taxpayers $2 million a year, and an appraisal indicated that the project would have virtually no value after losses were covered and a large private management fee, agreed to by the S&L before it failed, was paid.
So the Atlanta office of the RTC abandoned its interest and walked away from the project.
"Ninety million dollars down the tubes," Dudley said with a shrug.
It is here, on the front lines of the savings and loan cleanup, that the $100 billion-dollar price tag tied to the S&L debacle takes on the more-understandable dimensions of near-empty shopping malls and bankrupt real estate companies.
As regional director of the Atlanta division of the RTC, an arm of the Treasury, Dudley runs the insolvent thrifts that have been seized by the government in 23 Eastern states and Puerto Rico. The RTC's portfolio now includes 89 thrifts, with a total of 17,000 employees, $70 billion in holdings and nearly 10,000 properties like the Denver shopping center.
How well Dudley and his colleagues around the country do at managing and selling off this property will do much to determine the ultimate cost of the cleanup -- now estimated at $300 billion to $500 billion. So far, about 300 thrifts have been placed under the control of the four RTC regional offices, but officials already have signaled that at least 250 more are likely to fail.
Dudley doesn't take decisions lightly about interests held by the seized thrifts.
A 19-year civil servant on loan from the Federal Deposit Insurance Corp.'s division of liquidation, Dudley is polite, neat and attentive to detail -- the sort of fellow who would tidy the hair on a corpse.
To explain how his office works, he collects his top staff in a windowless conference room and hands out biographical sketches, thrice promising to revise his own re'sume' to correct the improper insertion of the word "a" in one sentence.
Usually the mistakes Dudley is trying to tidy up these days are bigger than that. And so is the corpse.
The sheer size of the cleanup makes Dudley's job more akin to that of a high-powered executive than a dutiful civil servant -- except that the RTC is a government agency and whatever losses it has will come from the pockets of American taxpayers. Dudley estimates that taxpayers could end up paying for losses amounting to one in every three dollars in the Atlanta RTC's portfolio.
"I liken the situation to if you had nationalized Citicorp," Dudley said, with a little hyperbole. Although smaller than Citibank, the institution he runs is bigger than all but a handful of banks in the United States. In the size of its holdings, it ranks alongside Manufacturers Hanover Corp. and just ahead of Bankers Trust NY Corp., and every week more properties and loans come into its hands as the government takes over more ailing thrifts.
The difference between the Atlanta RTC division's "bank" and other big banks, as Dudley notes, is that the RTC's has a lot more problems. And Dudley's goal is to go out of business.
Despite the high stakes, the RTC is still groping for a coherent strategy, both in Washington and in the field offices, for cleaning up the S&L mess. "I'm looking for where it tells me what to do, and it doesn't," said the managing agent the RTC installed at one failed thrift. "There is no history on how you do this."
For months, the Bush administration struggled to fill vacancies on the RTC's policy-making oversight board, and just last week, 10 months after Congress passed the thrift bailout law creating the RTC, the agency's board overhauled the way it will try to get rid of the thrifts. Even now, as it considers a sweeping reform of the nation's financial services sector, the administration hasn't decided whether there is even a need for a separate S&L industry.
Amid the delays and resulting confusion, Dudley and his colleagues around the country have encountered a series of problems:
When the RTC takes control of a thrift, it often scares off depositors and borrowers, destroying what may be left of a thrift's value to a potential buyer.
The goal of the RTC is to find such a buyer for all or part of a failed thrift, but when one is found for some part of the business, prices are hard to determine, and it is possible the government will get only a fraction of what the business was thought to be worth.
Even after buyers are found for the "healthy" parts of the thrifts -- the good loans and the stable deposits -- the agency finds it has barely made a dent in problem real estate or getting rid of bad loans that were on the failed institution's books.
"There is a distressing lack of basic thought about these things," said George Benston, a professor of finance, accounting and economics at Emory University. "Speed is very important, and they can't seem to get their act moving. The structure is too much of a bureaucracy."
Although they recognize the accumulating problems, Dudley and his top aides say they are doing their best.
They start each day at 7 a.m. and work well into the evening. Some can't leave the work behind. One says he often gets up in the middle of a sleepless night and trims his hedges to relax. Even the RTC's critics say that attacking people like Dudley is like complaining about the soldiers at Verdun, the World War I battle where poor leadership by French and German generals led to the loss of more than 300,000 men on each side.
Dudley plays down questions about strategy. With the soul of an administrator, he says his toughest decisions have been "building up systems and controls" and "staffing up."
In staffing up, Dudley has drawn mainly from the FDIC liquidation division -- the unit that cleans up after a major bank failure -- thus fueling suspicions that the RTC is trying to liquidate ailing thrifts instead of getting them back on their feet.
Randolph W. Sammons, a 23-year FDIC veteran who is a former bank examiner and liquidator, effectively acts as the RTC's investment banker: He tries to find another institution that will take on the customers of failed institutions.
Sandra A. Waldrop, a 24-year FDIC employee, is a former bank examiner who now deals with smaller institutions.
Alvin J. Felton, a pale but energetic 72-year-old who spent 42 years rising through the ranks of the General Motors Acceptance Corp. before joining the FDIC liquidation division in 1984, is in charge of getting rid of the bad loans and properties.
Even though Dudley plays down strategy, every step the RTC takes has huge ramifications.
Every Monday afternoon, a separate agency called the Office of Thrift Supervision decides which thrifts to take over and notifies the RTC. The RTC has three days to get ready. On Fridays, the Atlanta office is largely deserted; the staff is in the field marching into the condemned thrifts, ousting certain executives, seizing control of the bank's accounts and putting the thrifts into what is known as "conservatorship."
Some lawyers and economists say this is where the trouble has begun, and they allege "conservatorship" is a misnomer. They argue that RTC takeovers frighten people, who start yanking their money out of the S&Ls. At Civic Savings Bank, a small Ohio S&L taken over by the RTC earlier this year, 30 percent of deposits were withdrawn in the first month of government operation.
Moreover, the RTC has slapped restrictions on the seized thrifts, making it hard for them to do ordinary business. One Midwestern manufacturer whose loan is up to date has had to appeal to the Atlanta RTC regional office twice to stop a local RTC official from cutting off its credit line. That has made it hard for the government-run thrifts to hang onto customers.
The RTC's strategy would have been fine if the goal was to get the government out of the S&L business as fast as possible, but it turns out not to have been the best way to save taxpayer dollars. Deposits -- the accounts in a thrift -- represent the customer lists and potential sources of profits. If deposits disappear, so does the value of the S&L. This means less money returns to government coffers when a failed thrift is finally sold.
"An institution is taken over, it loses its good people, it sells off its good assets, its customers leave, then we wonder why we can't sell it," said one RTC official. "Customer loyalty takes a long time to get back." For six months this official had been pushing for a policy to sell thrifts "before they have the government taint on them."
Finally, this past week the RTC announced that it would start an "accelerated resolution program" that seeks to speed up the process by negotiating the sale of a thrift before it actually is seized. But by delaying the start of the program, the RTC may already have lost opportunities.
Some agency officials, for example, wanted to sell healthy parts of New Jersey's City Federal Savings when it was seized last December. The idea seemed reasonable. A week before, Pittsburgh-based Mellon Bank had bought a thrift in Philadelphia, calling it a "gem" of an opportunity to get into a big market. Several New York banks were interested in getting into the New Jersey market.
But six months later, the RTC has barely started getting City Federal ready for sale. One frustrated RTC official said the delay in this case alone may cost taxpayers more than $200 million.
The bidding process also has been unwieldy.
In April, the Washington office of the RTC took out an ad in the Wall Street Journal suggesting that investors contact regional RTC offices for information about thrifts and the bidding process. But the regional offices didn't have the information yet.
When the Atlanta RTC office heard that there would be a seminars held to market thrifts, it called Washington to ask if its officials could attend the meetings. Washington replied: You are running the meetings.
And when the RTC has "resolved" S&Ls, it hasn't been selling entire thrifts. It has sold off deposits and written hefty checks to the acquirers so the new owners have money to pay people who want to take their funds out of the institutions. Meanwhile, many of the most worthless assets stay with the government.
The Atlanta RTC office "resolved" 57 savings and loan institutions, which had portfolios of $20.3 billion. But the RTC still is sitting on 60 percent of the worst assets -- bad loans to homeowners and businesses, foreclosed real estate, paintings, unrealized plans and junk bonds.
There are countless choices and little guidance about what to do with all this.
Nearly every day the Atlanta office's credit committee meets to make decisions, like the one about the Denver shopping and office complex, worth millions of dollars. If it gives borrowers breaks, it looks like the government is letting them off the hook. It can also sell a mortgage or another loan to another private institution should someone want the future income stream from interest and principal payments. But if the RTC sells a loan at a discount because of credit risks, it might look like it is giving away government property cheap.
Not to take action is costly, too.
"On the private enterprise side, every year that a property is not sold, it decreases the net recovery by 20 to 30 percent," said Aldridge, the Atlanta attorney who specializes in working out real estate problems. The steep decline happens because of the money that would have been received in selling the property cannot be lent out again to earn interest and because the RTC must pay the costs of taxes, insurance, maintenance and security.
Some debtors try to take advantage of the RTC, because it is a government agency, in ways they probably could never do with private institutions. A debtor who an RTC source describes as having "nothing but money," has threatened to halt low- and moderate-income housing deals unless the RTC lets him off the hook for letters of credit.
In each case, the RTC weighs the prospect of a speedy payout against the danger of looking soft. The Atlanta RTC office rejected an offer from a New Jersey developer who wanted to pay off his $11.3 million first mortgage and his $2.8 million third mortgage for a reduced total of $8.8 million. His 376-unit condominium complex has an occupancy rate of just 27 percent, but two appraisers said the project is worth $12.6 million. The RTC has no hope of collecting the third mortgage, but it wants the entire first mortgage repaid.
"We're not here to collect interest for 25 years," said Dudley. On the other hand, he said, "We don't want to spread the idea that it is easy to come into the RTC and reduce your obligations."
RTC headquarters in Washington has ordered the managing agents installed at government-run thrifts to come up with plans for getting rid of assets by the end of the year. But an Atlanta regional official said many of the plans for 1990 still haven't been submitted, and those that have aren't realistic.
"Everyone just says they will sell in the fourth quarter. Very few of the plans are well thought out," said one Atlanta source. "The instructions are to have nothing on the balance sheet but cash and core deposits by December 1990, but everyone knows that's crazy."