WASHINGTON -- In a decision raising the issue of corporate interference in regulatory actions, the Federal Reserve Board on Wednesday conditionally approved Bank of Boston Corp.'s acquisition of Multibank Financial Corp.

The 4-0 approval, with three abstentions, accompanied a less controversial decision allowing the Boston company to buy Society for Savings Bancorp, a Connecticut-based thrift.

The Fed last week rejected the Multibank acquisition, arguing that Bank of Boston was not sufficiently capitalized to absorb the Dedham, Mass., company. But the governors reversed themselves - before the decision was published - when bank officials approached them with an offer to raise "significant" new capital.

3 Governors Abstain

Three governors refused to vote Wednesday on the revised proposal, arguing that the last-minute jockeying had corrupted the approval process.

"We believe that it impairs the integrity of the board's decision-making process to permit an applicant to submit new infomation after board has considered the record of the case and while the board is in the process of issuing its decision," wrote governors David W. Mullins, Edward W. Kelley, and Lawrence B. Lindsey.

They expressed concern that it could lead other applicants to "submit marginal proposals and then attempt to negotiate an acceptable proposal directly with the board."

However, the three governors acknowledged that Bank of Boston's new proposal was acceptable from a safety-and-soundness viewpoint.

The Boston banking company, which has $31.6 billion of assets, said it plans to raise $170 million-including $100 million of subordinated debt and $70 million of preferred stock - before the Multibank deal closes.

Shares of Multibank and Society rose sharply on the news. Multibank climbed $4 a share, to $24.25, while Society rose $1.25 to $17.375. Bank of Boston stock rose 37.5 cents, to $22.375.

Market Share Bostered

The Multibank purchase will raise Bank of Boston's share of the Massachusetts deposit market to 31% from 26%, bolstering its position as the state's biggest bank. In Connecticut, the Society deal will make it the state's fourth-largest bank.

The Fed's order indicated a concern that the original plan to buy two companies within a few weeks of each other could lessen Bank of Boston's "capacity to serve as a source of strenght for its banking subsidiaries."

Bank of Boston is operating under a Fed supervisory order.

Society for Savings, which has $2.4 billion of assets, earned $6 million in the first quarter, compared with $1.3 million in the same period a year earlier. Meanwhile, its bad assets declined to $82 million, or 3.4% of total assets, from $114 million in the fourth quarter.

Multibank, which also has $2.4 billion in assets, earned $5.7 million in the first quarter. Although it has not recovered as fast as Society, it still posted a slight decline in bad assets, to $135.3 million, or 5.6% of the total.

Fred Vogelstein in New York contributed to this article.

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