Merger Talks Over American Savings Keep Dragging On : Amount of Federal Assistance Apparently a Sticking Point for Bank Board, Bass Group

Talks dragged on long into the night Friday as federal savings and loan regulators continued their marathon efforts in Washington to sell ailing American Savings & Loan to investors led by Texan Robert M. Bass.

At stake is the attempt by the Federal Home Loan Bank Board to arrange the largest single rescue in the history of the savings and loan industry. Crippled by bad real estate loans, American Savings, the operating arm of Irvine-based Financial Corp. of America, has about $30 billion in assets, second highest in the industry.

Shortly before midnight on the East Coast, the bank board confirmed that talks were still going on, but the agency had no announcement to make.

The talks were said to center around an 11th-hour disagreement over how much federal assistance will be provided for the sale. Officials familiar with the talks said the bank board, through its Federal Savings & Loan Insurance Corp. arm, wanted to reduce the assistance by as much as $600 million.

The parties had previously agreed to a deal whereby the Bass Group would provide $550 million in new capital, while FSLIC would kick in as much as $2.2 billion over a 10-year period. It wasn’t clear what sparked the new dispute, but the last-minute hold-up coincided with criticism from key congressmen who questioned the sale’s terms and bargaining methods.

Conflicting Reports

Should the deal fall through, it will undoubtedly raise questions anew about whether federal regulators have the ability to solve a problem as big as the American Savings case, given their lack of financial resources and the delicacy of framing a sale acceptable to both investors and elected officials.

The negotiations have been conducted in an atmosphere of fatigue and frayed nerves that has taken a heavy toll on the participants, as talks dragged on through Wednesday, Thursday and Friday. The Bass investors, impatient and accustomed to quick decisions, butted heads with cautious bank board negotiators, who know the deal will have to pass intense congressional scrutiny.

The Dow Jones news service reported Friday morning that the talks had “collapsed.” Though apparently correct as far as the Bass camp was concerned, a spokesman for the bank board denied the report, saying another round of talks had just resumed.

The Bass investors spent much of the afternoon and early evening secluded in a Washington office, where they awaited word with a mixture of exasperation, fatigue and confusion. As far as they were concerned, they had made their last offer for American Savings.

Bank board officials, meanwhile, were closeted in their 17th Street offices, where a security guard kept out unwanted visitors. FSLIC Executive Director Stuart D. Root, asked in the building lobby how the negotiations were going, told a reporter: “Thanks for stopping by.” He then instructed the guard to keep reporters out.

Friday night’s activities capped a workweek in which the course of the negotiations changed swiftly and dramatically. As late as early this week, officials close to the talks were saying privately that only a few manageable issues needed to be settled.

But that changed after congressmen began to publicly question the sale. As more details leaked out, the Bass proposal proved vulnerable to public scrutiny.

Particularly damaging was a letter from Sen. Donald W. Riegle Jr. (D-Mich.) to bank board Chairman M. Danny Wall demanding justification for some key terms of the transaction. Riegle asked for answers before the deal was done.

Policy Debate

One touchy area is Bass’ proposal to establish a merchant banking investment subsidiary of American Savings that would have $1.5 billion in capital and finance his corporate buyout activities.

But the prospect of a Texas tycoon using federally insured deposits to fund big mergers, while at the same time receiving billions in FSLIC assistance, eventually became a public policy controversy.

Though the concept of a merchant-banking subsidiary was even opposed by in some quarters of the bank board, proponents argued the subsidiary was legitimate because Bass has a proven record in those kinds of investments. Savings and loans are allowed to invest up to 10% of their assets in direct investments.

The negotiations with Bass formally began 133 days ago and have dragged on as one self-imposed deadline after another came and went in July, August and September.

Through most of the bargaining, optimism ran high on both sides of the table, but others familiar with the inner workings of the bank board urged caution, saying nothing is ever certain at that government agency.

The bank board is the principal regulator for the nation’s 3,100 FSLIC-insured savings and loans.