By Keith Bradsher
N.Y. Times News Service
WASHINGTON _ Federal regulators and lawmakers have moved to stop the reaping of huge profits by executives and trustees when mutual savings and loans sell stock to the public or merge with commercial banks.
The Federal Deposit Insurance Corp. said Wednesday that it would draft rules to protect depositors at mutual institutions that sell stock, as Green Point Savings Bank in Queens is trying to do.
A federal district judge Wednesday temporarily put on hold Green Point's efforts to sell stock this week, saying that a suit against the bank by depositors may have merit.
In the executive branch, a Treasury Department official said that his agency was moving to halt action on all requests by mutual savings and loans to sell their institutions to commercial banks.
"We will certainly stop processing them today," said Jonathan L. Fiechter, the acting director of the department's Office of Thrift Supervision. But he then stopped in midsentence and said that no formal decision for a moratorium had been made. Fiechter made his comments to reporters after testifying before a congressional panel.
The Democratic chairman and the ranking Republican on the Senate Banking Committee introduced legislation Wednesday that would restrict executive compensation in all sales of mutual institutions, which are owned by depositors.
The legislation offered by Donald Riegle, D-Mich., who heads the committee, and Alfonse M. D'Amato, R-N.Y., would ban the granting of most stock options and would impose other limits. They said their move was needed to prevent abuses by insiders that shortchange depositors.
Legislation that would impose less stringent limits has already been introduced in the House by the Democratic and Republican leaders of the House Banking Committee.
Fiechter told the House Banking Committee's panel on financial institutions that prompt federal action is needed because hundreds of mutual savings and loans have been sold in recent years, often enriching their directors and executives, but not the depositors who technically own the institutions.
"We had 2,000 mutuals, now we're down to 800," Fiechter said. "If we study this for two years, there won't be any mutuals left."
With $250 billion in assets, mutual savings and loans make up about a quarter of the nation's savings and loan industry, and hold 5 percent of the entire American banking and savings industry's assets.
Last year alone, 111 mutual savings and loans in the United States ceased to be owned by their depositors, including 29 bought by banks, according to figures compiled by SNL Securities L.P., a brokerage firm in Charlottesville, Va. The rest sold stock, as Green Point is trying to do, or created a parent company and sold some stock in it.
It is unclear how many potential deals would be affected by any moratorium.
The issue of whether executives and trustees are profiting unreasonably from such transactions has been highlighted by the case of Green Point, based in Flushing, Queens.
The bank had originally won the approval of the New York State Banking Department for a plan to sell stock to the public, with provisions that would give its officers and directors large blocks of stock and options. Many other mutuals had rewarded their executives and directors in a similar manner.
The planned stock sale took a twist when the Republic Bank of New York made an unusual counter-offer to buy Green Point that included cash payments to depositors. Only after that did the state banking department balk and attention began to be focused on the generous compensation.
If Green Point stock had doubled after being issued _ paralleling the experience of other mutuals _ the stock and options that would have been granted to 16 officers and trustees would have been worth an estimated $85 million. …