WASHINGTON - Glendale Federal Bank escaped the clutches of regulators Thursday when the Office of Thrift Supervision lifted its requirement that the California thrift attain certain capital levels by 1995.

The decision to lift the prompt-corrective-action order imposed in June was seen as a significant victory for the money-losing Glendale, the nation's fifth-largest thrift. Under the order, the thrift had to raise its core capital to 5% of assets and its risk-based capital to 10% by 1995.

It now holds core capital of 4.91% and risk-based capital of 9.86% - well above the 4.5% and 9% ratios the OTS required the thrift to meet by the end of this month.

Last Hurdle Cleared

"This removes the last difficult hurdle that we had in being able to focus on returning the bank to profitability," said Stephen J. Trafton, Glendale's chairman and chief executive officer.

The OTS decision means Glendale can avoid further radical capital-raising steps - including the sale of profitable branches - that could hurt its future earnings stream.

Glendale, which has $17.9 billion of assets, escaped seizure by the government earlier this summer when it raised $451 million through a reorganization and rights offering. The deal was completed on Sept. 17, Mr. Trafton's 47th birthday.

|Adequately Capitalized'

The large capital infusion, which Glendale accomplished in spite of widespread skepticism from industry observers, raised the thrift to the OTS level of "adequately capitalized."

The regulator refused to say why it decided to rescind the capital requirements so soon, noting its official policy of not commenting on specific institutions.

Mr. Trafton said in an interview that he now wants to implement a business plan to steer the thrift back to profitability after six quarters of losses. On Thursday, the executive repeated his prediction that Glendale would return to profitability within the next 12 months.

"We don't currently anticipate positive earnings this fiscal year," which runs from June 1993 to June 1994, he said. "For the full year, we would probably expect a loss, but we do expect a turnaround in earnings during fiscal 1994."

He also noted that the lifting of the OTS order frees Glendale's officers to focus much more intensely on their business operations.

"Our prior strategies that were designed to specifically meet the 5% and 10% requirements can now be reexamined," Mr. Trafton said.

Free of Day-to-Day Scrutiny

The OTS decision also frees Glendale from the need to submit to intensive compliance reporting and day-to-day OTS supervision and oversight, he said.

Although he would not provide details of his business plan, Mr. Trafton said he sees several encouraging trends. The inflow of nonperforming assets has stabilized, he said, and nonperformers are being reduced.

He also said he was encouraged by national economic trends and the improving California real estate market. The economy has "bottomed and is beginning at least a gradual improvement," he said.

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