WASHINGTON - Two fedaral king agencies are squabbling over whose budget may have to absorb the cost if either has to shut down the nation's fifth-largest savings and loan, California's Glendale Federal Bank.

According to sources, the interagency debate was summarized in blunt terms in a confidential letter sent last month from the Federal Deposit Insurance Corp., which regulates banks and oversees the S&L insurance fund, to the Office of Thrift Supervision, which regulates thrifts.

The thrift agency has given Glendale Federal, which has $18 billion in assets, until Aug. 31 to finish its ongoing deal to raise $375 million to $425 million by restructuring the company and completing a rights offering.

The memo, according to sources, was mailed to OTS on July 9 but not received until July 26.

Concerns Said Addressed

Glenfed chairman Stephen Trafton said he had no direct knowledge of the memo but said that it was probably part of the process in which the pros and cons of the thrift's capital restoration plan were discussed by the banking agencies.

The FDIC's purported concern was taken care of in the approved plan, he said, because it requires Glendale to have 4% core capital and 9% risk-based capital by the ends of August, well in advance of the Sept. 30 sunset date for the Resolution Trust Corp. to add failed thrifts to its case load.

Sources claim that Glendale had its debt and equity investors on board its capital plan until last week when Calfed, which was recapitalized in the spring, reported a $45 million loss, sending its shares to $9 or 45% of book. Glenfed was trying to sell sharps at 60% to 65% of book.

Glenfed reportedly renegotiated the deal with equity and bond holders and supposedly is close to an agreement.

Mr. Trafton refused to comment on the offering.

Pointed Questions from FDIC

In the July letter, the FDIC's regional supervisory director for San Francisco, George J. Masa, demanded to know what the thrift office's plans were for money-losing Glendale and repeatedly mentioned the sunset date for the Resolution Trust Corp., which is now responsible for disposing of failed thrifts, said a person who had seen the document. Federal officials privately confirmed the letter's contents.

The FDIC letter focused on whether mere indications of interest from investors in the company's ongoing rights offering and preferred stock offering justified keeping Glendale open. The FDIC letter also refers to an earlier memo from Marianne Wright, the assistant director of the thrift agency's San Francisco office, to her bosses.

In the memo, Ms. Wright expressed general concerns about whether the deal would go through, and specifically raised questions about how strong the expressions of interest from shareholders had been and whether OTS could justify allowing Glendale to stay open based on that, rather than on a concrete agreement. Glendale announced in July its sixth-consecutive quarterly loss.

Termed a Lost Cause

Because Glendale does not have a strong earnings stream, "forbearance will only prolong the agony," said Bill Ferguson, president of the Dallas-based consulting firm Ferguson & Co.

Neither the FDIC nor the Office of Thrift wants the responsibility for shutting down Glendale. The FDIC, which is the backup regulator for thrifts, wants Glendale to be shut down if its financial troubles are unlikely to be resolved quickly.

Who Would Pay, and When

If the institution closes after Sept. 30, the FDIC's insurance fund would have to pay an estimated $5 billion tab for its closing. Congress this week is considering additional funding for the RTC. The House bill - if passed - would grant the S&L cleanup agency $18.3 billion. A failure of Glendale alone could consume nearly a third of the money in the bill.

But if Glendale is allowed to stay open after the RTC stops taking thrifts, and later fails, it will go to the new Savings Association Insurance Fund, which is run by the FDIC and which at the end of March had just $441 million.

Complicated Recapitalization

Congress is considering appropriating $16 billion for the Savings Association Insurance Fund along with funding the RTC, but the money would come with lots of strings attached.

The company's management is attempting a complicated recapitalization. It seeks shareholder approval to merge its holding company, Glenfed Inc., into Glendale Federal, the thrift subsidiary.

It is restructuring its holding company debt by offering a debt-for-equity exchange; it is seeking reclassification of the thrift's preferred stock, and subsequent to that, with shareholder and bondholder approval, it will begin a rights offering to current and other investors, which is expected to raise $250 million to $300 million. It will also offer an additional $125 million in other securities, most likely preferred stock.

The thrift agency and the FDIC refused to comment on record regarding the matter.

The interagency debate is also complicated because neither agency has a Clinton appointee at its head yet.

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