Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 24, 1991 TAG: 9102220698
SECTION: BUSINESS PAGE: E-1 EDITION: METRO
SOURCE: By JAY GREENE LOS ANGELES DAILY NEWS
DATELINE: LENGTH: Medium
Since taking over as director of the Office of Thrift Supervision, T. Timothy Ryan Jr. and his department have been accused of acting too slowly to take over flagging thrifts, of scaring S&L executives so much they have become reluctant to make loans, and, most recently, of the handling of Columbia Savings and Loan Association.
The Beverly Hills, Calif.-based thrift that invested heavily in junk bonds was taken over by the government last month. Ryan rejected an offer by a Canadian-led investment group last summer to pay $3 billion for Columbia's junk bonds - including a $300 million non-refundable down payment - because it would have allowed the group to call off the deal if the bonds dropped below a certain level.
The already-battered junk bond market has fallen even farther since then.
Ryan has been zealous in going after S&L executives. His office is seeking tens of millions of dollars from men like Charles H. Keating Jr., who ran Irvine, Calif.-based Lincoln Savings and Loan Association, David Paul, who ran Miami-based CenTrust Bank and Columbia's Thomas Spiegel.
In an interview last week in San Francisco, Ryan discussed his track record and his views about where the industry is headed.
Q: Thrift executives and bankers say the credit crunch is going to exist despite continued drops in interest rates because regulators are overzealous in examining institutions and discouraging loan-making. Is that so?
A: That's overstating it. I think you have to wait and see what we're doing. All of the bank regulatory agencies are working on something that is geared toward addressing the credit crunch. It is a high-wire balancing act, especially in my shoes, where you're dealing with a financial calamity and trying at the same time to sustain a healthy portion of an industry.
Q: Is it fair to say that regulation is getting tougher and that institutions simply aren't willing to lend because of that?
A: No, I'm not necessarily sure it's fair to say that. I think that regulators are human beings. They have responded to intense scrutiny and criticism like anybody else would. This is a subjective business. Where there is an option to go one way or the other, they have been taking the conservative option. There is no doubt about that.
Q: Do you anticipate more thrift takeovers or is it just a matter of resolving the already-seized thrifts?
A: It depends on the economy. There are some real weaknesses in certain areas of California, certainly on the commercial side and now increasingly on the residential side. Our forecasts see the recession ending around the third quarter. If that economic forecast is incorrect, then there will be more institutions at risk.
Q: You have said that about 1,500 institutions are healthy out of 2,400 in the industry. Does that suggest a fundamental weakness?
A.: When I say healthy, I mean really healthy. That means institutions that meet all enhanced capital standards and are making money. They're good, they're survivors whatever happens. There is another group that are troubled and if the economy picks up, a lot of them will make it. If the economy stays in the tank, a lot of them will have real problems. And there is another group, the last group, that we have identified for resolution.
Q: Those thrifts in the second tier could be the next potential problem. How severe would the economy have to be before a majority of them would be seized?
A: We concentrate a lot of our efforts on those people. I'm not sure that the severity of the recession is the issue. It's the length of the recession. And it's isolated to institutions that engage heavily in the highest-risk lending category, which is commercial real estate. There is a direct correlation between weakness at financial institutions and commercial real estate. We just built too much in the 1980s. And now it's come home to roost, almost overnight.
Q: Some have said that you could have worked creatively with the rules to push the Columbia deal through.
A: I don't know who's telling you that. They're wrong. We knew exactly what we were doing. We knew exactly what we had to do. When we said no and then went back through the process, we only did that after we got the authority to provide the financing. And in the intervening three months, the junk bond market went to hell in a handbasket. I had no control over that. It's just as possible that while we were waiting, the junk bond market could have improved and instead of getting $3 billion, we could have gotten $4 billion. But it didn't happen that way. I have no misgivings. None. We didn't have any other option.
by CNB