Governor’s Order Effective for 20 Days : Withdrawals Halted at Ailing Maryland S
Maryland Gov. Harry Hughes on Monday ordered a 20-day halt on all withdrawals from troubled Community Savings & Loan Assn. of Bethesda.
The governor acted at the request of Community President Clayton McCuistion, who wrote Hughes on Monday citing “heavy withdrawals due in large part to recent publicity surrounding the (federal) requirement that Community divest” its $1.5-billion real estate subsidiary.
Community has been told by the Federal Home Loan Bank Board that it cannot qualify for federal deposit insurance until it disposes of Equity Programs Investment Corp. (EPIC), a Virginia real estate investment company owned by Community.
EPIC disclosed Friday that it is unable to pay some of its debts, setting off heavy withdrawals at all six Community branches in the Washington suburbs over the weekend and again Monday.
‘Emergency Exists’
Even though withdrawals from Community were already limited by state order to $1,000 per month from most accounts, depositors continued to drain away as much cash as possible, prompting Hughes to use his emergency powers to halt all withdrawals. The governor, in his executive order, said: “An emergency exists with respect to Community Savings & Loan Assn. in that the welfare of the depositors is threatened by an actual or impending impairment of liquidity.”
Community is one of the largest Maryland savings and loans that has not yet received either conditional or final approval for federal deposit insurance, which all state S&Ls; are required to get by year-end.
Community’s finances began to unravel last Wednesday when McCuistion disclosed that federal regulators were pressing for the sale of the real estate venture. Two days later, he announced that EPIC was delinquent on some payments due on about $1 billion in mortgage-backed securities.
In his letter to the governor, McCuistion said Community is “actively pursuing negotiations with a number of interested parties” to sell EPIC. “These negotiations cannot succeed in an atmosphere of public panic, which is the natural result of continuing media coverage of lines at our branches,” he said.
According to the Wall Street Journal, among the institutions exposed to possible losses in connection with Equity Programs are Los Angeles-based Ticor Mortgage Insurance Co.; MGIC Investment; PSFS, the large, Philadelphia-based financial-services concern, and Salomon Bros.
Norm Silverstein, spokesman for the Maryland Deposit Insurance Fund, the state agency insuring deposits up to $100,000 at institutions that have not obtained federal insurance, said: “We have no evidence that this problem has spilled over to any other savings and loan, nor should it. EPIC is a situation that is unique.”
The order issued by Hughes generally prohibits all withdrawals from all accounts. It allows Community to pay out funds for construction and real estate loans if such payments “will protect or enhance the value” of its assets.
