WASHINGTON - An interim ruling issued Tuesday by the Office of Thrift Supervision made it significantly easier for thrifts to repurchase stock.

Previously, mutual thrifts that converted to stock form were not allowed to repurchase stock in their first year and were limited to buying back 5% of outstanding shares in their second and third years. The interim rule eliminates any restrictions after the first year and allows thrifts to buy back outstanding shares within that year if they can prove "extraordinary circumstances."

"When a thrift's stock price is low, many institutions want to repurchase their stock to bring up its price and improve their capitalization ratio," said David Permut, an OTS lawyer. "The OTS is sensitive to this, and wanted to conform to a similar rule issued by the Federal Deposit Insurance Corp."

The interim rule is part of a broad OTS strategy for mutual institutions, mutual holding company reorganizations, and the mutual-to-stock conversion process. The agency issued it - as well as numerous other proposed changes - in a response to a nine-city "listening tour" by OTS officials in late 1999.

A growing number of mutuals have elected to convert to stock ownership, leading some observers to wonder whether the OTS is pushing conversions. OTS Deputy Director Richard M. Riccobono said he made the tour to dispel that impression.

Many mutual thrifts "feel that OTS rules tip in favor of conversion, when, in fact, that is not our intention," he said. "In many respects, mutuals form the heart of the thrift industry. They are community-based and -focused, and provide a safe place for community members to save. And they invest in their own communities through prudent credit programs."

Mutuals make up nearly 40% of the 1,097 thrifts, but hold only 7% of the assets overseen by the OTS. Mr. Riccobono said the agency's goal is to find ways to help improve the position of mutuals if they do not want to convert, and that it is exploring the feasibility of capital-raising alternatives such as subordinated debt, mutual capital certificates, and nonwithdrawable accounts.

It is still a priority at the agency, however, to make mutual holding company status more appealing to conversion-minded thrifts. It is the middle road between full stock conversion and maintaining mutual status, as depositors must own at least 51% of the holding company, while the rest can be sold to the public.

In accordance with the Gramm-Leach-Bliley Act of 1999, the interim rule gives mutual holding companies parity with financial holding companies. That change allows mutual holding companies to create financial supermarkets offering banking, brokerage, and insurance services.

The OTS is also eliminating shareholder dilution when mutual holding companies waive dividends. In the past, a dilution could occur if a mutual holding company fully converted to stock form, and the OTS required the company to reduce the number of shares minority shareholders receive in the conversion in order to account for the amount of waived dividends.

Under the proposal, the OTS is considering raising the cap on stock options that mutual holding companies can issue. Stock options are currently restricted to 10% of outstanding shares, but the proposal would change that to 4.9% of the company's value.

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