Temporary Halt Is Called on the Mergers of Mutual S&Ls; : Thrifts: The moratorium is called a good first step to protect depositors when the institutions are acquired.

L.A. Times Archives

Feb. 1, 1994 12 AM PT

From Associated Press

WASHINGTON —

In a crackdown on windfall profits for some insiders, federal regulators imposed a moratorium Monday on mergers in which the stock of a depositor-owned savings and loan institutions is sold to the public.

The action by the Office of Thrift Supervision was welcomed by Rep. Henry B. Gonzalez, chairman of the House Banking Committee. The Texas Democrat said it is a good first step to protect depositors when so-called mutual S&Ls; are acquired by other companies.

In calling a temporary halt to the merger activity, the OTS said it also intends to review standard conversions in which mutual S&Ls; decide on their own to offer stock to the public. The agency said it will continue to process applications for standard conversions during the review.

“I applaud the OTS for its decision today to impose a moratorium on merger conversions, which are the most egregious type of conversion because the depositors . . . are not always able to purchase the savings bank stock, whereas the bank insiders always go home with their pockets lined,” Gonzalez said.

He urged the Federal Deposit Insurance Corp. to impose a similar temporary ban on merger conversions for mutual S&Ls.;

The FDIC and OTS share responsibility for regulating the savings industry.

At a House banking subcommittee hearing last week, several lawmakers expressed concern that some insiders are getting rich in the deals.

Acting FDIC Chairman Andrew Hove promised the panel it will examine the conversions more closely. He said the agency is considering requiring special vouchers be issued to depositors when mutual savings institutions sell stock. The vouchers would let the holders buy stock, or they could be sold by depositors who so choose.

Acting OTS director Jonathan Fiechter said the moratorium will remain in effect until the agency drafts rules to protect depositors.

Mutual S&Ls; have $250 billion in assets, about a fourth of the nation’s savings and loan industry.

Last year, 112 mutual S&Ls; converted to publicly owned stock--including 29 that were bought by banks, industry groups reported.

OTS said managers of mutual thrift institutions often get lavish stock options and retirement pay when the S&Ls; merge. It also said, acquiring banks can reap big profits by purchasing the mutual at a steep discount from its market value.