WASHINGTON - Dime Savings Bank of New York has emerged as a last-minute suitor for Crossland Federal Savings Bank, complicating regulators' plans to sell the Brooklyn-based thrift to institutional investors.

The Federal Deposit Insurance Corp. had already lined up investors and was planning to announce details nest week, according to people familiar with the deal.

But Dime's interest, which was confirmed by industry sources, is now holding up the process. Under federal law, the FDIC must explore all options and pick the least expensive option for resolving failed banks.

The FDIC announced in mid-May that it expected to get a better price for the $5.7 billion-asset Crossland by selling it to institutional investors, rather than to another financial institution.

Sale to Investors Seen Likely

That unusual strategy is being pushed hard by FDIC resolutions director Harrison Young, and most observers, think the agency will still take that route.

But Dime's interest, at a minimum, throws a wrench in the works. The thrift, which has $8.8 billion in assets, competes in the New York metropolitan area with Crossland and could boost its market share and generate significant cost savings through an acquisition.

It is unclear whether Dime has presented a formal offer or just expressed an interest in bidding. Dime and the FDIC declined to comment.

Regulators seized Crossland in January 1992 and, in a highly unusual move, decided to operate it themselves for up to two years rather than sell it immediately or liquidate it.

Offers Rejected

The regulators, who concluded they would fetch a higher price for Crossland down the road, rejected as inadequate offers from Chase Manhattan Corp. and Republic New York Corp. The FDIC pumped in $1.2 billion to recapitalize the institution.

Now the agency is under pressure to prove the wisdom of its plan by fetching the highest possible price for Crossland. The FDIC originally predicted it would eventually get 1.5 times the thrift's book value in a sale.

The agency has shopped the general outlines of its proposed sale to investment advisers. One adviser said he thought Crossland would sell for 70% of book value - or about $322 million. However, the FDIC could take a piece of the deal, which would reduce the amount of money raised from investors.

Investment advisers also confirmed that the FDIC plans to absorb some of the losses embedded in Crossland's $1.2 billion portfolio of bad assets.

"With the right pricing, it could be a good deal," a potential investor said. "Our risk is limited through loss sharing."

Crossland has been slimmed down for sale by FDIC-appointed chief executive Richard A. Kraemer, who is expected to stay on if the bank is bought by investors. He has cut Crossland's size, expenses, and personnel. The savings bank has earned $22.3 million over the past year and a half

Crossland has shrunk its assets by $1.7 billion, to $5.7 billion, paring 32 branches and selling subsidiaries. Nonperforming assets have been whittled to $1.2 billion from $4.4 billion. Crossland had $548.2 million in capital on March 31.

The market for thrift stocks is hot, but crowded.

Dime raised $200 million in capital recently, while two mutual thrifts are planning to raise a total of $1 billion through initial public offerings.

A second Wall Street source said these deals could crowd Crossland, but insisted that "there is a lot of money out there to recap the banking industry.

"It's a big appetite, but it's being sated."

FDIC officials are privately hailing their deal as a home run. One Wall Street source who has seen the offering called it "impressive."

The agency had planned to file a prospectus for the deal next week with the Office of Thrift Supervision. Dime's maneuvering will now delay that.

Low interest rates have helped the FDIC in its gamble to operate Crossland, but many people still question whether it made the right move in preserving an ailing bank when the industry has so much overcapacity.

Six months after the seizure, House Banking Committee Chairman Henry B. Gonzalez said the "FDIC resembles the bleary-eyed gambler at midnight in Las Vegas, throwing another wad of money on the table in hopes that earlier losses can be recovered."

The Texas Democrat ordered an investigation of the FDIC's decision, and the General Accounting Office lambasted the agency in a July 1992 report, concluding that $440 million in reported savings were not documented adequately.

And the scrutiny is not over. When FDIC confirmed in May that it might sell Crossland to institutional investors, Mr. Gonzalez said he will ask the GAO to evaluate the deal "to make sure that FDIC gets the best deal for the taxpayer."

Excess Capacity Cited

Bert Ely, a consultant who tracks the FDIC closely. criticized the structure too. He said Crossland should be merged into an existing institution to wring out excess capacity.

"They are keeping alive . . . an institution for which there is no need," Mr. Ely said, noting that Crossland was the first - and last - patient in the FDIC's trumpeted "hospital" program that was supposed to to nurse sick banks back to health.

"They have to put the best spin they can on a deal that if they had it to do over again, they wouldn't have done it."

[TABULAR DATA OMITTED]

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.