Two minority investor groups are about to test the government's resolve to help minorities win auctions for failed thrifts.

The groups -- Enterprise Bancorp and First InnerCity Holdings -- are each preparing to bid for Maryland's John Hanson Savings Bank, and they expect stiff competition from several regional banks.

Congress' Requests Ignored

The contest, which follows a tightening of laws aimed at giving minority investors an edge in thrift auctions, could erupt into a major battle if neither Enterprise nor First InnerCity win, observers say. Indeed, some are already predicting lawsuits.

Until now, minority bankers argue, the Resolution Trust Corp. has all but ignored urgings from Congress to give preference to minority bidders. Instead, the bailout agency has simply favored the highest bids. That strategy stemmed from a mandate to keep cleanup costs low.

Enterprise and First InnerCity each maintain that they should win John Hanson because the thrift's 14 branches serve predominately black suburbs of Washington. Each group is planning to start a bank in the area, and each wants to incorporate John Hanson in its startup.

The RTC declined to comment on the situation. But Trevor Bell, president of First InnerCity, Stamford, Conn., says both investor groups have been in touch with the RTC.

"They know our position here, and we hope they interpret the law the way everyone thinks it was intended to be interpreted."

There is a lot at stake. M. Scott Lawyer, a Memphis consultant and a former regional general counsel to the Federal Deposit Insurance Corporation, says the bidding "could very well be a test of the whole law and change the way the RTC does its business from here on out."

Rep. Kweisi Mfume, a Maryland Democrat, member of the House Banking Committee, and chairman of the Congressional Black Caucus, has asked the Justice Department for a clarification of the law requiring preference for minority bidders, according to Dan Wilson, Mr. Mfume's press secretary.

At issue is language in three important pieces of RTC legislation, the most recent being the the RTC Completion Act of 1993.

The three laws require the RTC to attempt to keep failed minority S&L branches in the hands of like-minority banks, offer capital assistance to minority banks bidding on RTC branches, and offer failed S&L branches in minority neighborhoods to minority financial institutions.

Hoping to take advantage of the laws, Bell's group and Enterprise, headed by John P. Kelly -- a well-known banker in the fight for more minority institutions -- applied to the Maryland bank commissioner for charters late last year. In Maryland, the minimum capitalization for a new bank is $5 million -- money both groups said they are still raising.

'Least Cost' Provision

Both groups said they plan to bid on the branches and deposits of RTC-held thrifts in Prince George's County and other parts of Maryland. John Hanson failed in 1991.

In the past, the RTC has interpreted the laws to mean that resolving a failed thrift at "least cost" remains its paramount mission -- even if that means a nonminority bank will prevail in its bid for assets or deposits in a minority area.

Mr. Bell said this interpretation puts him at a disadvantage because he cannot compete on price with larger, established majority institutions.

Maryland has only one minority commercial bank, in Baltimore. Prince George's County last year was highlighted by Rep. Henry Gonzalez, the Democratic chairman of the House Banking Committee, as a prime example of how minority neighborhoods are not being served by majority banks in the Washington area.

"It's safe to say that most people would look at this law and conclude that Congress meant that in certain circumstances minority groups would not have to compete with the likes of NationsBank and First Fidelity," Mr. Bell said.

"To apply this law and still sell to the highest bidder is ludicrous," he added. "It's a far too narrow interpretation of the law."

Social Costs

Mr. Bell said the RTC isn't taking into account the social costs of a nonminority bank buying a branch in a minority neighborhood and then closing the branch and taking the deposits out of the neighborhood.

He said that unless a resolution of a bank, or its offices, ends up in the red, minority groups alone should bid on branches and deposits in minority neighborhoods.

RTC officials did not respond to several requests for comment. Last month, the agency did issue a statement saying it would try to include as many minorities as possible in its resolution process but didn't back off from its "least cost" interpretation of the law.

So far, only one new bank, Founders National Bank in Los Angeles, of which Kelly was president until late last year, has successfully bid on RTC branches and deposits to establish a franchise. Kelly, now a Prince George's County resident, said that the Washington area needs more community banks and that the sale of John Hanson, which held $1 billion in assets at its peak, is the best way to accomplish this goal.

Mr. Kelly also is helping establish National Bancshares Inc., a minority group with the tentative plan of buying Adams National Bank, a minority bank in the District of Columbia. He hopes, he said, to merge Enterprise with Adams at some point in the future if his bids are successful and all the shareholders approve.

Even though he expects a conflict over the John Hanson sale, First InnerCity's Mr. Bell said he understands the RTC's position.

"They're in a tough situation," he said. "The law is too vague. The test is going to be what happens in Maryland, with Columbia Savings in New York and Carteret Savings in New Jersey, both of which have significant branches in minority areas."

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