WASHINGTON -- North Carolina regulators have rebuffed a mutual savings bank's controversial plan to give depositors free stock as it converts to public ownership.

The state rejection on Thursday came two weeks after federal regulators gave the go-ahead for the deal. Lexington, N.C.-based Perpetual Savings Bank had planned to give its depositors up to $1.1 million in cash or free shares as it sold stock for the first time.

The North Carolina Savings Institution Division said it would allow Perpetual to complete its deal if the institution agreed to forgo its plan to give away about 15% of the new stock to depositors,

Many mutual thrifts believe such a distribution would set a precedent for other deals spurred by depositors looking for payouts as their institutions go public -- a concern North Carolina regulator Stephen E. Eubanks mentioned as he rejected the plan. He did not return calls seeking comment.

Allowing a conversion with a payout plan, "may create a precedent which would permit an institution to adopt a plan for the payment of 'bonus' or 'special' interest payment from a portion of its capital," the state administrator wrote in a Nov. 10 letter to Perpetual, which has $38 million of assets.

Perpetual's president and chief executive officer, B. Glenn Smith, said the state regulator's decision is unfair, because under past deals in North Carolina, "They complained about the saver not getting anything, and then they complain if you want to give them something."

The Perpetual deal also raises questions about how the Federal Deposit Insurance Corp.'s new chairman, Ricki R. Tigert, interacts with the agency's staff.

The FDIC board allowed Perpetual's plan for the depositor giveaway to go ahead late last month. FDIC rules call for the agency to pattern its conversion standards on Office of Thrift Supervision regulations.

The OTS bans such payouts to depositors. Acting OTS director Jonathan L. Fiechter was the only FDIC board member to vote against Perpetual's deal.

Stanley J. Poling, director of the FDIC's division of supervision, stressed that on the Perpetual deal, "We issued a nonobjection letter . . . We made it very, very clear that we were not endorsing the plan."

The FDIC staff had told Ms. Tigert that Perpetual's payout -- called a Depositors Recognition Plan -- did not mirror an approach outlined in a controversial, and later abandoned, agency white paper, regulatory and industry sources said.

But after the approval, many mutual thrifts were alarmed that similar payments could be demanded in future deals.

Paul H. Stock, executive vice president and counsel of the North Carolina Alliance of Community Financial Institutions, said, "They were told this was not raising the issues of the white paper -- We have heard anecdotal stuff that Tigert would have felt very differently if she had realized that it had."

Ms. Tigert refused to comment.

The white paper suggested that regulators should allow institutions going public to issue transferable stock rights to their depositors.

The Perpetual deal does not include transferable rights, but it embraces its underlying principle -- that depositors should be given some of the value when mutual thrifts go public.

The FDIC's Mr. Poling said, "I don't see any connection between transferable rights and the DRP."

The North Carolina thrift trade group disagreed. "If all that was said was this does not raise the same issues as the white paper, I think the staff did the board a disservice," Mr. Stock said. The staff also told Ms. Tigert that North Carolina regulators favored the deal. "Staff believed the commission was likely to approve the deal," Mr. Poling said. But the state apparently changed its mind. Some say North Carolina regulators opposed the depositor payout after the FDIC approval drew wide attention, and some say the state regulator had opposed the payment for some time. FDIC spokesman Alan Whitney insisted, "The board was not misled."

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