PRICE WATERHOUSE: MERITOR WOULD HAVE SURVIVED BUT FOR THE FDIC
In response to the government's argument that it had to seize Meritor because it was in such dire straits that it could not have survived with or without its supervisory goodwill (it has made the same argument in every other case in which a bank was seized), Mr. Slattery commissioned one of the nation's leading accounting firms, Price Waterhouse/Coopers & Lybrand, to perform a detailed analysis of Meritor's financial condition as of December 11, 1992. John D. Finnerty, a Price Waterhouse partner with over 20 years of experience as a financial analyst specializing in financial institutions (he is also a former thrift executive whom the FDIC has itself used as an expert witness on numerous occasions), headed up the assignment. Quoting from Dr. Finnerty's report:
" . . . banks (weaker than) Meritor which, unlike Meritor, were given the chance to do so, survived and profited in the years after 1992. The regulators evidently believed in 1992 that these comparable banks were viable, and hindsight proves that they were right . . . Meritor was denied continued existence because, unlike these other institutions, a large part of Meritor's capital consisted of grandfathered goodwill. In most other respects, Meritor was as strong as, or stronger than, the comparable banks that were allowed to continue (in existence).
(EDITOR'S NOTE: The banks which the FDIC allowed to survive had another thing going for them; none had an $800 million reserve on the FDIC's books which could easily have been recovered simply by closing them. The FDIC's recovery of the $800 million which the GAO had forced it to set aside for the Meritor "resolution" basically allowed the FDIC to return to solvency and balance its own books. For further information on this subject, see Follow the Money; What Happened to PSFS and Why.)
"At December 11, 1992, Meritor was in compliance with (FDIC) capital requirements (and had) adequate cash flow to cover its debt obligations as they came due . . . Had Meritor retained its FDIC insurance and been allowed to remain in operation, it was not in danger of failing in the foreseeable future. Indeed, (comparable banks), some of which were in more serious financial condition as of the date Meritor was closed by the regulators, have not only survived, but increased in value since 1992."
The government, as expected, had its own "experts", but as it turns out, both were found by Judge Smith not to be "experts" at all; he qualified their ability to give "expert" testimony with respect to large portions of their reports. Since there was no jury involved, Judge Smith entered their reports into the record but stated that he would disregard those sections dealing with areas in which they had been disqualified.
To read the Price Waterhouse report in full, click here: Resource-218/FINNERTYREPORT.pdf. (NOTE: You must have Adobe Acrobat Reader installed on your computer; PLEASE ALSO NOTE that the document consists of 25 mb -- if you are connected to a LAN or T-1 line, it should take about five minutes to download. However, IF YOU ARE CONNECTED TO A STANDARD TELEPHONE LINE, IT MAY TAKE UP TO 2 TO 3 HOURS).