Government takeovers spawn interest rate war between healthy, troubled institutions.

Government takeovers spawn interest rate war between healthy, troubled institutions

Healthy Los Angeles financial institutions are being forced to offer above-market interest rates to compete with troubled savings and loans that have been taken over by the government, bank and S&L executives contend.

"When savings and loans are taken over by OTS (Office of Thrift Supervision) they offer CDs with interest rates that are higher than market rate and that has a negative impact on banks competing in that area," said Joe Borda, president and chief executive officer at Los Angeles-based Westside Bank. But Borda noted the situation is not as bad as it was a year ago when savings and loans were "paying outrageous rates."

To compete with high CD rates offered by troubled S&Ls, such as Columbia Savings and Loan and Farwest Savings being operated by the U.S. government, Westside Bank is offering a rate of 7.1 percent on a 180-day CD, which is 90 basis points higher than the national average of 6.2 percent, Borda said.

He added that "the point spread between the good banks and the bad is to attract money from the public who must forego investing in a sound institution to get higher rates, but that impacts all of us healthy banks."

And Borda said, "If someone asks me what is the difference between investing $99,000 in Columbia and $99,000 with my bank, I would have no answer except to say that I will be around in six months."

Paul Wood, spokesman for American Savings Bank of Stockton, said his institution has noticed that people are becoming more savvy about investing "are less senstive to high interest rates and are taking a second look before putting money in a troubled savings and loan."

At present the problem seems focused in specific areas, such as the Westside that has a preponderance of Columbia Savings and Farwest Savings branches, and is not affecting other parts of the Southland.

`My impression is that practice had been stopped and there are no branches in our area (of troubled savings and loans)," said Nick Barakonski, president of Del Amo Savings.

The troubled thrifts, being operated by the Resolution Trust Corp., must pay higher interest rates to attract new money until they can sell the good assets to another bank of S&L, explained Barry Rubins, chief executive officer of Santa Monica-based California Research Corp.

"The RTC just took over Columbia and even though they have a good branch system it will take some time for them to find buyers," Rubins said.

However, Borda said, it won't be easy to sell off Columbia and Farwest's assets. "Economically it would be better for the tax payer if the government could move the sick S&L's assets into a safe larger institution, but the problem is that there are not too many banks with excess assets to acquire the troubled ones," he noted.

Plus, he explained, S&L assets not fetching high prices these days. Coast Savings had expected to sell off several branches for $30 million to $40 million, said Borda, but could only get $20 million for them.

One of the most infamous S&Ls taken over by government, Irvine-based Lincoln Savings, should be sold by March 1, according to Kevin Shields, a spokesman for the Resolution Trust Corp.'s western office in Denver, Colo. The financial institution has 28 branches with many located in the Southern California area.

Shields said that sealed bids for the financial institution can be submitted by interested investors at the RTC's Washington, D.C. headquarters.

PHOTO : Columbia S&L: Good branch system looking for buyers