Maryland Works to Preserve Its Shattered S&Ls

American Banker, June 7, 1985 | Go to article overview

Maryland Works to Preserve Its Shattered S&Ls


BALTIMORE -- When Ohio's privately insured savings industry was collapsing, Maryland's Gov. Harry R. Hughes said he didn't think the same thing could happen here because the privately insured thrift industry in this state was well run and well regulated.

But it could -- and did -- also happen here. Within two months of Mr. Hughes' confident statement, the State of Maryland has had to take over insuring the deposits of 100 associations formerly covered by the Maryland Savings-Share Insurance Corp., a private fund. And the state is also responsible for running two savings and loan associations that are under conservatorship.

The state inherited the tasks as the price of halting a run that threatened the privately insured S&Ls with financial collapse. Whether it can maintain public confidence, limit its financial risk, and restore the S&L industry to normal will depend on how well the work is performed.

The major risk to the state comes from the two "sick" thrifts, Old Court Savings and Loan Association and Merritt Commercial Savings and Loan Association, which are operating under conservatorships. What the state wants to od is manage those institutions -- or arrange for professional management to do so -- to ensure as great a return as possible from their real estate and other investments, so that the state's and, ultimately, the taxpayers' liability will be limited.

Calculating the liability at Old Court and Merritt will be the key to determining what state officials ultimately do with the two troubled institutions.

May Be $500 Million Short

Some banking executives and state officials have said privately that they would not be surprised if the two associations fell as much as $500 million short of fulfilling all depositors' claims. That figure would greatly exceed existing state reserves for such claims, but no formal estimates have been issued by the state and none is likely to be made anytime soon.

Whatever estimates do emerge, the size of the losses will determine whether the two savings associations will be able to qualify for federal deposit insurance, will be sold to other financial institutions, or will have to be broken up into pieces and liquidated.

The shortfall will also determine whether additional legislation is needed to permit out-of-state banking companies to acquire these associations and whether additional money must be appropriated to cover future losses.

Despite the uncertainty about the future of Old Court and Merritt as financial institutions, the state has guaranteed all deposits up to $100,000 per account.

Thomas H. Maddux, the state official responsible for making plans for the future of the two associations, said depositors do not have to worry about the integrity of their funds. However, in an interview last week, he said he could not say when depositors would have unrestricted access to their funds again.

At the moment, depositors are restricted to withdrawing $1,000 a month from each account they have at the two thrifts. Gov. Hughes issued an executive order two weeks ago allowing larger withdrawals for hardship cases at other thrifts, but the order does not apply to Old Court or Merritt.

To resolve the fate of these two associations, developing sound financial data on them is receiving top priority. The sooner the data are developed, the sooner the state will know what options it has for Old Court and Merritt. "We are trying to get the best profile of information we can," said Mr. Maddux. "We have people working around the clock."

Accountants Going Over Books

The state has a $25,000 contract with the national accounting firm of Touche Ross & Co. to organize Old Court's loan portfolio, which lacks much of the necessary documentation needed to establish its value. Touche Ross, which performed the same task at several S&Ls in Ohio this spring after the collapse there, will be assembling documents like mortgages, appraisals, and loan payment schedules. …

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Maryland Works to Preserve Its Shattered S&Ls
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