WASHINGTON -- A quick compromise was reached last week over a lawsuit alleging that new mutual thrift conversion rules discriminate against out-of-town investors.
Separately, the Office of Thrift Supervision was expected Friday to approve 20 pending mutual conversion deals. Without the approvals, the financial documents backing those deals would have become outdated Saturday.
"We don't expect that any applications that will go stale after today will not have been acted upon," OTS spokesman Paul Lockwood said Friday afternoon.
Unfair Advantage Seen
Thrift Depositors of America Inc., a trade group representing professional depositors, charged in a May 6 suit that the new conversion rules unfairly give depositors who live within 100 miles first shot at buying the converting thrift's stock.
The compromise includes an agreement by the OTS to notify the disgruntled depositors' group if the agency approves any mutual conversion deals that contain provisions limiting the stock purchases of out-of-towners.
Since the new rule went into effect May 3, OTS acting director Jonathan Fiechter has approved some deals already in the works, and in each one has waived the new rule's provisions giving stock purchase priority to depositors who live within 100 miles of the converting thrift.
The OTS is operating under interim rules right now. The agency is using the tightened conversion standards in its new rule, but is still taking comments from the public until June 17. The regulations are expected to be finalized this summer.
The compromise gives the depositors' group time to go to court to stop an individual deal.
"We have not guaranteed or promised in any shape that we will continue to grant these waivers," Mr. Lockwood said. "We did agree that if we approve a conversion application without the waiver, we would notify their law firm, which would give them an opportunity to reinstate the suit."
Michael S. Helfer, a partner at Wilmer, Cutler & Pickering who represents the depositors' group, said the compromise, "fairly protects the interests of the Thrift Depositors of America because we can get into court on an expedited basis if they approve a conversion with geographic discrimination."
In the agency's expected action Friday, two thrifts with pending deals were not acted on because they had already planned to submit new financial data, Mr. Lockwood said.
Thrift lawyers said that while the OTS is approving most pending deals, it is forcing many thrifts to boost their appraised value. If the agency does not act on the deals before their financial statements go stale, institutions that want to convert will generally incur significant extra expenses to complete the deals.
The OTS confirmed that account. "We are not denying any," Mr. Lockwood said. "All of them are being approved with conditions based on the new regulations. In some cases we have granted waivers on various aspects of the new rules."
Kip A. Weissman, a partner who specializes in thrift stock conversions at the Washington-based law firm of Silver, Freedman & Taff, said, "The message is that the OTS is being very tough - I don't think anyone is getting away with anything."
"They are pushing appraisals to nearly unprecedented levels even in the face of declining thrift profits as a result of rising interest rates," Mr. Weissman said. The OTS, in conditioning its approval of the deals on higher appraisals, is "obsessing with price/book ratios and they are ignoring price/earnings ratios even though [thrift] profits are going down."