U.S. to Press ‘Shotgun Marriages’ on Some S

The government will press for mergers between struggling savings and loans and stronger competitors to build a smaller but healthier thrift industry, M. Danny Wall, director of the Office of Thrift Supervision, said Wednesday.

Speaking to the U.S. League of Savings Institutions, the main thrift industry group, Wall said his agency would use the threat of penalties against thrifts to arrange “shotgun marriages” with potential suitors.

“We are calling this our arranged marriage program. Where I come from, they would put the word ‘shotgun’ in there,” he said. He said the program would start in a week.

The forced mergers would apply to S&Ls; that fall short of tough new capital requirements issued by the office this week.

The capital rules and merger programs are the latest steps by the chief federal regulator of the 2,900 U.S. thrifts to reform the industry after heavy losses forced Congress to pass a $159-billion bailout law.

Wall said well-run institutions in the thrift industry, which is a major source of loans for home buyers, have been penalized for imprudent and criminal actions by some savings executives.

Wall, who has been heavily criticized by members of Congress, vowed he will be a diligent enforcer of new rules requiring thrifts to put more of their own funds at risk in the form of capital.

The capital rules issued by the thrift office Monday will require many thrifts to increase their capital beginning next month as a cushion against losses and if they cannot, to submit a plan to comply.

If a cash-strapped thrift receives an offer to be acquired but is too coy about accepting, the regulators will have to consider whether the thrift’s behavior violates a rule against operating in an unsafe manner, Wall said.

“We will consider enforcement actions,” he said.

Wall said as many as 300 thrifts could disappear into acquiring firms, which might be healthy thrifts, commercial banks or industrial companies and will include non-U.S. firms.

A Japanese firm is acquiring part of a Hawaii thrift for $20 million, Wall said, without identifying them. He said Royal Trustco Ltd. of Toronto, the largest trust company of Canada, is investing $110 million in Pacific First Financial of Seattle in order to expand.

“Major international financial service organizations share our vision of a positive future for the thrift industry,” Wall said.

In another area, the agency will soon issue rules that will specify when an undercapitalized thrift must limit or omit dividends to help build up capital, Wall said.

He said the number of thrifts that are insolvent because they have liabilities exceeding assets will continue to grow.