A Call for Easier Thrift Conversions

Q&A Patrick Forte, president of the 40-member Association of Thrift Holding Companies, says Congress should make it much easier for S&Ls to convert to banks in order to attract capital to the industry. Not only that, more customers would be attracted to S&Ls if they had the power to switch charters, he told Washington bureau chief Jim McTague. Mr. Forte hopes a streamlined charter conversion process will emerge in the banking reform bill now wending its way through Congress.

American Banker: If you get your wish, aren't you putting yourself out of business? Wouldn't all thrifts convert to commercial banks? Patrick Forte: We wouldn't go out of business. Half of the insured depository institutions owned by our holding company members are not thrifts. They're banks, credit card banks, non-bank banks.

The real question is not the type of charter, but rather: How can any company that owns or has a substantial interest in a federally insured depository realize a reasonable return on its investment? Right now, that's very difficult. As to those that are still holding thrifts, it appears that attracting capital as well as customers would be enhanced by allowing companies to change their charter to whatever their marketplace might indicate. AB: Wouldn't this put an end to the thrift industry? PF: Now, this has nothing to do with changing the nature of an institution's business. A company that is engaged in consumer or housing finance would not be compelled to change that just because the charter changes. AB: This would be a two-way street, right? PF: Under current law, any of these conversions are available. It's just that they become extremely difficult to implement. Under the savings and loan holding company act - and there are examples of this around the U.S. - a company can own a bank and a thrift. AB: What if you don't get your wish from Congress? Will thrift holding companies be in dire financial straits? PF: It's important to let institutions attract more capital. Since January 1990, almost no new capital has flowed to any thrift. Approximately 20 times more capital has flowed to the bank side.

There was a case recently where one of our members tried to sell off one of its four S&Ls to raise capital, and it couldn't give the institution away. This is a profitable holding company whose stock is trading at only 30% of book value. It went through all the regulatory hoops and changed the S&L charter to a bank. It was then able to sell the institution at 150% of the holding company's book value. So the type of charter does have an impact on investors. AB: How would the ability to switch charters without a hassle attract customers? PF: Customers perceive thrifts as being impaired. This ability would also help thrifts retain customers.

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