Washington — Federal regulators announced yesterday completion of an agreement to rescue the country's largest insolvent savings and loan institution in a bailout that could cost the government $1.7 billion. The Federal Home Loan Bank Board said it had completed an agreement to sell American Savings and Loan Association of Stockton, Calif., to an investment group headed by Texas billionaire Robert M. Bass.
According to the details of the sale, the bank board, which regulates the country's 3,100 savings and loans, will inject as much as $1.7 billion in federal aid.
As costly as the American Savings bailout will turn out to be, it was dwarfed by a second announcement concerning the rescue of five large Texas institutions.
The bank board said it will provide $5.1 billion in government assistance over the next 10 years to assist in the takeover of five of the most financially troubled Texas institutions.
The Texas S&Ls are being taken over by the investment group of MacAndrews & Forbes Holding, which is headed by Ronald O. Perelman, takeover specialist and head of Revlon Inc., the cosmetics company.
Despite the cost of the rescue packages, bank board chairman M. Danny Wall said that the cost to the government of simply closing the insolvent institutions and paying off depositors would have been far higher.
In the California case, Mr. Wall estimated the cost of closing the S&L and paying off depositors would have cost the insurance fund, the Federal Savings and Loan Insurance Corp. (FSLIC), $3.3 billion, compared to a cost of $1.7 billion for the sale to the Bass group.
With yesterday's actions, the government has resolved the cases of 181 failed S&Ls this year, up from 48 last year. Wall said that he still expects to meet his estimate of settling 200 cases before the end of the year.
The board is rushing to complete transactions because tax breaks for institutions getting government assistance will be reduced after Jan. 1.
The purchase agreement for American Savings, the country's second-largest S&L, and the biggest one that was classified insolvent, will require the Bass Group to invest $350 million in cash and add another $150 million over the next three years. In return, the government will provide an estimated $1.7 billion in financial aid.
The announcement culminates months of negotiations between the bank board and the Bass Group.
In a statement, Bass said, ``I am delighted that our months of hard work with the bank board and its staff have resulted in a new start for American Savings. The employees and customers of American Savings can start the new year knowing that they are now associated with one of the healthiest institutions in the country.''
More than 400 insolvent thrifts remain open and hundreds more are close to insolvency.
Estimates of the cost of cleaning up the industry range from $50 billion, made by the bank board, to $112 billion, the recent estimate by the General Accounting Office, the auditing arm of Congress.
Even with the rapid pace of rescues in recent weeks, analysts say the problem is getting worse by more than $1 billion a month.
Congress will begin consideration of a taxpayer bailout of the FSLIC when it convenes in January.