High Court Rejects S&L; Takeover Case : Thrifts: The justices let stand a ruling supporting the intervention of federal regulators at a troubled Kansas institution.

In a closely watched case involving the government’s power to seize financially troubled thrifts, the Supreme Court on Monday rejected a challenge to the takeover by federal regulators of a Kansas savings and loan.

Separately, the government’s thrift bailout agency plans to halve its staff and shut down nine offices nationwide next year as the task of selling off failed savings and loans winds down, the agency said Monday.

Regarding the Supreme Court action, the justices, in a one-line order, let stand a ruling by a U.S. Court of Appeals that federal savings and loan regulators acted within their legal authority during the 1990 takeover of the failed Franklin Savings Assn. in Ottawa, Kan.

The case had attracted national attention when a federal judge initially sided with the bank and ruled that the actions by M. Danny Wall, then-director of the government’s Office of Thrift Supervision, were arbitrary, capricious and without factual basis.

But the appeals court, in a decision last May, said the judge was wrong and it found sufficient evidence to support the government’s takeover.

It cited Franklin’s loss of more than $58 million in 15 months to Dec. 31, 1989, and said the owners had diverted millions of dollars through large salaries, bonuses and dividends despite the large losses.

Attorneys for Franklin, supported by a number of banking trade associations, appealed to the Supreme Court, asking the justices to review the case.

The Justice Department defended the seizure of the thrift, saying the appeals court properly relied on the administrative record in the case and that further proceedings were unnecessary.

The Supreme Court sided with the government, denying the appeal. The action, while important for the government’s efforts to clean up the savings and loan scandal, only applies to the facts of the case and does not create a national precedent.

The Office of Thrift Supervision, which was the agency responsible for shutting down Franklin, said the decision supported its actions in trying to clean up the troubled industry.

On the prospect of winding down the Resolution Trust Corp., the thrift bailout agency, RTC President and Chief Executive Albert Casey said, “The vast majority of thrift institutions to be resolved is behind us and the backlog of assets to be sold is declining, indicating now is the time to start downsizing the RTC.”

The RTC said it had only 73 thrifts remaining in conservatorship by mid-March, all of which will be sold or merged with other lending institutions by September. Congress created the RTC in 1989 to manage and sell the assets of failed savings and loans.