A heated war of words could come to a head Friday at a government hearing on a community group protest of Glendale Federal Bank's proposed merger with CenFed Bank.

The San Francisco-based Greenlining Institute filed the protest in November with the Office of Thrift Supervision, claiming that the Glendale, Calif.-based institution is not lending enough to minorities.

In a closed-door hearing set for Friday in Los Angeles, OTS officials will hear from both sides and decide whether to approve, deny, or modify the terms of the merger proposal.

If the past several months are any indication, the hearing could get ugly.

Officials at the thrift and Greenlining staff members have exchanged several letters, including one that irritated Glendale Federal chairman and chief executive Stephen J. Trafton so much he has threatened to sue the group for libel.

In October, the community activist group met with Mr. Trafton to discuss whether Glendale had any specific plan to increase its service to minority communities. Greenlining sent a memorandum detailing the meeting to its members.

The Oct. 17 memo quoted Mr. Trafton as saying if "he did anything for African-Americans or Latinos, he'd have to do the same for 'Eskimos.'" According to the Greenlining memo, Mr. Trafton also said he was "unwilling to originate minority home loans since he viewed them as relatively risky."

In a fiery response to Greenlining, Mr. Trafton described the memo as "false, defamatory, and unnecessarily inflammatory."

"While you are free to protest Glendale's merger with CenFed and make other public statements, you are not free to portray either Glendale or me in a false and damaging public light," Mr. Trafton said in the Oct. 31 letter.

Mr. Trafton was unavailable for comment Monday but said in the letter that he would "consider pursuing all legal remedies available" unless the activist group retracted the memo.

But Greenlining general counsel Robert L. Gnaizda said Monday that the memo is accurate and accused Mr. Trafton of employing "scare tactics."

"He must have thought that no nonprofit group would want to expend $1 million to fight him off," Mr. Gnaizda said. "He is trying to stifle this protest by threatening a libel suit."

In its protest, the Greenlining Institute claimed that Glendale Federal booked just seven loans to African-Americans earning less than $35,000 during 1996.

Glendale's parent company, Golden State Bancorp., released a statement Monday disputing Greenlining's allegations and refusing to comment further.

Golden State announced in August an agreement to buy CenFed of Pasadena, Calif., for $210 million in stock. After Friday's hearing, the OTS will rule on the merger "as quickly as is reasonable," an agency spokesman said.

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