European Stars And Stripes (Newspaper) - March 16, 1986, Darmstadt, Hesse                                Sunday March 16, 1986 the stars and stripes Page 19 business news Odic feeling the crunch of Bank failures Washington not to help american savers sleep at night and to give More stability to the american banking system Congress More than 50 years ago created a Federal Agency that insures deposits at the nation s com Mercial Banks. In the Early 1930s, Banks were failing by the hundreds and the Federal Deposit insurance corp. Was chartered to restore depositors Confidence. Though it did not have the explicit backing of the full Faith and credit of the United states government it carried the implicit governmental backing which seemed to suffice. Today Banks Are failing at rates unheard of since the depression and although Confidence in the system re Mains intact the government s insurance line of defense is struggling under a huge workload an administrative Nightmare. Never in its 52-year history has the Odic been under such strains says William m. Isaac chair Man from 1981 to 1985. In the last two years almost 200 Banks have failed. Consequently the Odic finds itself inundated with $11 billion in bad Loans and other assets that have to be sold for whatever Cash they will bring. Its Legal department is involved in More than 20,000 lawsuits and is bringing six times the number of enforcement actions against Banks that it brought five years ago. Its list of Banks whose financial health is impaired now exceeds 1,100, and the Agency anticipates 120 Bank failures this year possibly Many More. In addition the Agency has reported that it is setting aside $2.3 billion to protect against losses on Loans it assumed from the failures of the Continental Illinois nation Al Bank and other Banks. The total was More than twice the loan losses the Agency has taken at any one time and it said it planned to spread those losses Over 1984 and 1985. As if that were not enough the Agency s chairman l. William Seidman is battling the office of management and budget Over staff cuts. Although the Odic is self financing through insurance premiums and neither takes from nor gives to the Treasury the budget office insists that a Large portion of the insurance Agency must come under the provisions of the new budget balancing Law sponsored by Sens. Phil Gramm Warren b. Rudman and Ernest f. Hollings. Gramm Rudman has hit us at the worst possible time said one top staff official at the Agency. Our Bank supervisory staff is already a Little  Bank failures in number of Banks 1975767778 79 80 81 82 83 84 85 As of nov. 8, 1985 Chicago Tribune graphic source Federal Deposit insurance corp. The cuts have not touched the Agency s portfolio of Treasury securities and other assets the reserves that Back up its insurance of deposits of up to $100,000 per account. Those reserves Rose last year despite the loan losses because the income from premiums and invest ments exceeded the payouts. At the end of 1985 the Agency s fund stood at $17.9 billion still financially solid according to banking experts. What does worry Seidman his senior staff and banking experts Are the strains on management personnel and data processing systems strains they fear could cause manag Erial gridlock. The personnel have been overworked for five years and they face two or three More years of the same Isaac said. The size of the problem is illustrated by these figures in the Odic s first 47 years it closed Banks with assets totalling $9 billion at a Cost to the Agency of $500 million. Since 1981, the Agency has shut Down Banks with More than $75 billion in assets at a Cost to the Agency of almost $6 billion. Seidman says the budget office wants to place the Agency s Bank examiners under Gramm Rudman budget restrictions. He says that reducing the number of examiners invites Bank fraud More failures and a greater Cost to the insurance fund. Already this year the Agency has scrapped plans to add 600 examiners to Deal with the growing number of prob lems among its Banks. Just when we need More Bank examiners we arc going to have to pull banking supervisors from the Field and that s going to end in a certain amount of  Seidman said. Some people at bomb think deregulation Means leave the Industry alone. I say it Means you need More policemen out  even without budget cuts the Agency would be in a managerial and personnel crisis. It takes two to three years of training and experience to make a new Bank examiner effective and according to officials almost a Quarter of the Agency s Bank supervision Force of 2,123 arc new hires. The need for More examiners seems Likely to increase. Not Only has the number of problem Banks risen to 1,141 from 850 a year ago but also the Agency recently told Congress that unless the farm Economy improves the Trou ble and failure rates could skyrocket. Inevitably a High failure rate leads to a swollen Legal backlog. The Odic s Legal staff grew by 60 percent last year but still the paperwork filing and supervision of More than 20,000 lawsuits is staggering officials say. The biggest Burden is liquidating failed Banks. The Agency has increased its liquidation staff to 3,300, from 2,158 in 1984 and 460 in 1980, and it is still hiring. You can t imagine what it s like to close 120 Banks said Isaac. You have to go out and set up 120 different receivership. 120 sets of books 120  disposing of some Bank assets can require special exper Tise. Among $11 billion in assets the Agency is trying to turn into Cash Are a Coal mine a Fleet of tuna boats a racquetball club a Golf course race horses a rated mov ies and a Chicago building once used As a Brothel. And our Midwest division has sitting Bull s War shirt for Sale said Steve Katsanos an Agency spokesman. It comes adorned with human  investor s guide by William Doyle q. Being a very cautious investor in a High income tax bracket i buy Only insured tax free municipal Bonds. Are these Bonds rated aaa because they Are insured or Are they insured because they Are triple a a. That s really a Chicken or egg question. Some insured municipal Bonds would carry aaa ratings even if they were not insured. But some would not and get that top rating Only because they Are insured. Also you should be aware that some insured municipal Bonds Are rated below triple a. Standard and poor s corp. And or Moody s investors service inc. Automatically give triple a ratings to municipal Bonds insured by Ambar indemnity corp., Bond investors guaranty Finan Cial guarantee insurance co. And Munici pal Bond insurance association with the latter two getting the triple a accolade from both. Those triple a ratings Are based on the solid financial status and credit ratings of the insurers. The insurance guarantees that interest payments will be met and principal amount will be paid at maturity even if the issuer defaults. A Bond might get an a or a rating without insurance. But it moves up to triple a when one of the four insurers named above insures it. However not All municipal Bond insurers have triple a ratings and As a Conse Quence neither do the Bonds they insure. More and More outfits Are getting into the municipal Bond insurance business. Some Are individual insurance Compa Nies others Are consortium. Q. When a broker told me the Munici pal Bond i bought from him was insured i naturally assumed it had Federal government insurance As is the Case with Banks. Now years later i learn that the insurance on my Bond is provided by a corporation. I feel i am the victim of a lie by omission. Do i have cause for alarm a. Most Likely no. Even without insurance municipal Bonds Are Seldom High risk investments. Despite the understandable juror follow ing the disgraceful default of $2.25 Bil lion Washington Public Power Supply system Bonds municipal Bond defaults have been relatively few and far Between. In the unlikely event the issuer of your Bond fails to pay interest and or redeem the Bond at maturity the insurance corporation pledges to do so. To Date no municipal Bond insurer has failed to meet that obligation. Our Federal government does not in sure municipal Bonds which Are debt obligations of states and their political subdivisions. It s Folly to assume anything from an offhand statement by anyone who s sell ing you anything. When a broker mentions insurance ask what kind and get the details. Q. Enclosed Are photocopies of the front and Back of a municipal Bond. At the time of my Purchase in 1985, i was told by the broker it would mature in 11 years. But the front of the Bond gives a maturity Date of nov. 1, 2012. I called the broker and he said there is a Call Date on the reverse Side. Will i be Able to Cash this Bond in 1995, or will i have to wait until the year 2012? a. If the issuer of that Bond Calls it for Early redemption you la Cash the Bond at that time. If there is a Call you won t have any Choice in the matter. You la have to turn in your Bond for redemption. The Call provision is explained on the Back of the Bond certificate. It has a table showing the earliest Call can be made on May 1, 1986, at 108 percent of the Bond s redemption value and a gradually lower prices after that but never below 100 percent. The issuer is not required to Call the Bond for Early redemption and in All probability won t unless interest rates Are lower 10 years and More in the future. If interest rates stay reasonably High you might not be Able to redeem your Bond until nov. 1, 2012. However you can sell it at any time through a broker or Bank and get whatever its Market value happens to be at the time of the Sale. King features columnist Doyle welcomes written questions but he can provide answers Only through the column. You can write to him in care of the stars and stripes Apo 09211, . Forces Stock pulse United press International copyright 1986 Friday March 14 nose composite most Active Stock us St ism at Trevind storage Bris my am Cap Fokd Western Exxon div Tec mgt Arl nys Estock Amer Csc Phllip a Sun Schmint paper merc Sico Carol celanese Dupont a vex vol close 2,549,700 23 2,512,400 105% 2,161,400 23% 2,141,200 42 /2 by volume earns $ 2.56 10.67 1.37 3.60 be 9.0 14.0 17.0 12.0 2,003,300 3% ,977,400 71 /2 ,886,800 21 a ,806,700 58 /8 ,660,800 11 /4 ,596,900 55 3.86 1.46 0.95 6.46 19.0 40.0 12.0 9.0 old 5.2 2.9 5.1 3.5 2.6 3.8 6.5 composite largest net changes close Chae 151%" 6% 119 5%42% 5 /4 64% 5 96 /2 4% 108v4 of 4% 1953/4 4% 77% 4% 120% 4 /4 amex composite most Active Stock div vol close earns $ 7.58 10.15 0.52 2.16 6.95 5.51 13.70 4.61 10.85 be 21.0 12.0 82.0 30.0 14.0 20.0 14.0 17.0 11.0 old 2.2 3.9 1.1 3.7 1.3 2.9 2.5 3.9 5.3 by volume earns be old Wickes 3,792,200 dome Petro 2,341.400 Bat tie comm Phlp Tel wangle key pharm Western dig Smith b Delmed 6 /2 1% $ 0.78 1,521,3005 15-160.66 601,800 6% 505,000 465,600 456,200 413,600 396,100 326,500 4 21% 16 a la /2 287/a l /4 0.76 5.35 80 9.0 5.0 5.0 2.5 6.0 0.7 2.8 amex composite largest net changes Stock Aloha inc a Post forded Ellav Servo hovnanian s anytime Lecam Alamito sea close cd ge25 /2 151 120 /2 16% 17 /2 25% 66 /2 32% 134 22 of 3 /4 3 3 2%b 2 /2 2 4 2 .8 2 a 2 7/8 be Price to earnings ratio old dividend yield def deficit St yield in Stock earnings latest 12 months earns $ 1.44 7.73 1.14 1.11 1.31 2.90 2.52 10.78 1.50 be 18.0 20.0 14.0 16.0 19.0 23.0 13.0 12.0 15.0 old 0.7 11.6 0.7 0.9 4.3 unaudited