U.S. banking agency brings back retirees to manage crisis

by Geraldine Fabrikant NEW YORK: Before he retired from the Federal Deposit Insurance Corp. three years ago, Gary Holloway was cleaning up the remnants of the U.S. savings-and-loan crisis two decades earlier. His problems included selling leaky gas stations in Florida and the Thomas Ranch in California, also in need of a petroleum cleanup. What Holloway and his co-workers were really doing was working themselves out of jobs. The FDIC closed offices and slashed its staff in the 1990s as the savings-and-loan mess wound down after hundreds of failures through the 1980s. Activity slowed, with just 29 bank failures in the five years ended in 2004. So after 30 years with the agency, Holloway retired for a laid-back life of fishing and golf in rural Spicewood, Texas. At the FDIC, what followed was nothing – literally. From 2005 through the end of 2006, not a single bank failed, the longest such stretch since 1993. But in March of this year, the agency came calling for Holloway. With the credit and housing crises in full bloom, the number of troubled banks was again on the rise. A former colleague asked if he would return for a year to help sort out the bad loans of banks that the FDIC was shutting down. Holloway, 57, leaped at the chance. Now, he is on the road with a team that swoops in to handle collapses, sort through loans and reassure the public that their deposits are safe. The work is exciting and rewarding, and he says he just might sign on for another year. The agency, it turns out, is operating more like the rest of America, with a just-in-time work force that grows and contracts based on its needs. The FDIC, which had a staff of 4,600 at the end of 2007, has brought back about 80 people – largely retirees – and may well recruit dozens and even hundreds more. The extra people will help the agency, whose day-to-day activities are providing insurance for depositors, collecting premiums and regulating the nation’s financial institutions, work out the loans at failing banks. The advantages to retirees are several. Not only do they work for a specified length of time, but they also have something that the younger people lack: experience overseeing failed institutions. Commuting to faraway cities may prove tiresome, but the older workers do not have the responsibilities of younger people with growing families. Getting home is a hassle, Holloway concedes. The FDIC staff members on bank workouts are sent home every two weeks, but flying and making connections mean frequent delays. The FDIC hopes the retirees will share their knowledge with the less experienced. “We are trying to cross-train them to existing staff to work on bank failures, so we don’t need a huge staff waiting around for the next bank failure,” an FDIC spokesman, David Barr, said. Even if the agency’s work force continues to swell, the figure will probably be dwarfed by the nearly 23,000 – many of them part time – who were working at the FDIC at the height of the savings-and-loan crisis. Few expect the scale of the current crisis to approach that of the 1980s debacle, in which 2,000 banks and savings and loans were eventually closed. Since the mortgage crisis began a year or so ago, the FDIC has seized 11 banks, the largest being IndyMac, a mortgage lender in Pasadena, California, last month. (The peak in the savings-and-loan crisis was 1989, with 534 closings.) “In the 1980s, one-third of the S&Ls were insolvent,” Barr said. “Even if you listen to the extreme reports today, it does not sound as if it will be anything like that.” For Holloway, the return to work was quick. Within six weeks of the agency’s call, Holloway and three other returning retirees were working in Dallas on a strategic plan for ANB Financial, a troubled bank in Bentonville, Arkansas, with $2.1 billion in assets that had moved fatefully into construction lending. The FDIC seized ANB on Friday, May 9, so that it could use the weekend to regroup and open for normal business on Monday. A total of 100 people moved into the bank’s nine Arkansas branches and three offices in the West, with the mandate to separate the assets and deposits that would be transferred to Pulaski Bank & Trust, a rival bank in Little Rock. The acquisition was arranged by another part of the FDIC. The team was careful to camouflage its identity in the days leading up to the seizure. Holloway and his colleagues used personal credit cards, rather than cards provided by the FDIC, to avoid detection. From the seizure on Friday until ANB Bank reopened all its branches on Monday for customers under the Pulaski name, it was continuous work. Holloway and five colleagues huddled in the bank’s loan office in St. George, Utah. Two-thirds of ANB’s loans had been made in Utah. ANB, like other smaller banks, had been eager to grow and had determined that its northern Arkansas housing market, heavily laced with retirees looking for new leisure homes, was saturated. It moved further west and into construction loans. Those can be treacherous because it takes years to determine if the development is successful and the bank will be repaid. “Between Friday night and Sunday morning, we separated the bad loans that would ultimately be sold off from the assets and deposits that would go to Pulaski Bank & Trust,” Holloway said. In their first week of bank control, members of his team worked 60 to 70 hours. They were making the sorts of decisions that would determine the fate of many projects under construction. In one case, Holloway and his team decided to advance more money to a golf resort project that was nearly 90 percent complete. While he says the resort’s units may not bring as much as two years ago, he is convinced they will sell. On the other hand, “we are contemplating turning one project down where the borrowers need another $7 million to $8 million,” he said. “We are about halfway through, but the builders’ net worth is not as strong as we would like.” What the FDIC decides to sell is posted on its Web site. About $145 million in nonperforming loans of various types are listed for sale from ANB, along with a few properties from Arkansas to Utah. Holloway finds bailing out troubled banks exciting and fulfilling. After all, the agency is assuring people that most accounts are guaranteed up to $100,000 even in a failure, and in larger amounts in certain circumstances. About $40 million of the $1.8 billion in deposits at ANB was not covered by government insurance. That meant most depositors were protected by the FDIC. “I get gratification at a job well done and knowing that people did not lose their money,” Holloway said. Then there is that bonus that all retirees can appreciate at a time when living costs have been rising and investment returns paltry He is now making as much as he did before he left the FDIC, and he is collecting his pension.