WASHINGTON - In a letter faxed to mutual thrifts across the country, a top Office of Thrift Supervision regulator said he doesn't want to see any institutions liquidated.

The letter sent last Friday by John F. Downey, the thrift agency's director of supervision, came after a June 22 American Banker article detailed two recent cases in which regulators allowed mutuals to voluntarily dissolve prior to selling their assets and liabilities to other institutions.

"Over the years, we have found that mutual institutions are typically conservative, well-run institutions that serve their communities," Mr. Downey wrote. "Advocating their demise is antithetical to our purpose as regulators and as citizens.

"OTS supports small businesses, many of which are mutual institutions. It has often been said that small business is the backbone of the economy. Likewise, we view mutual institutions as an important component of the savings industry."

In November, the thrift agency approved the dissolution of Cowenton Federal Savings and Loan Association of White Marsh, Md., and the transfer of its deposits to Mercantile Safe Deposit and Trust Co. of White Marsh. Cowenton's depositors came out of the transaction with a capital distribution that amounted to a 13.5% payout on their money.

In April, regulators in Washington State approved the voluntary dissolution of a state-chartered mutual, West Coast Mutual Savings Bank of Centralia, Wash., and the transfer of its assets and liabilities to Washington Federal Savings of Seattle. West Coast Mutual depositors also will get a capital payout, though the amount hasn't been set yet.

After the article detailing these deals appeared, America's Community Bankers president Paul A. Schosberg asked Mr. Downey to clarify his agency's position on the dissolution of mutuals.

After Mr. Downey wrote the letter, Mr. Schosberg faxed it to mutual members of the thrift trade association.

"It is unfortunate that the unique circumstances of Cowenton Federal...resulted in Thursday's article in American Banker," Mr. Downey wrote. "Few, if any, existing mutual institutions could duplicate the particular circumstances supporting Cowenton's dissolution."

Cowenton, Mr. Downey wrote, was "not an active savings association" and had "little appeal for potential acquirers."

This description did not sit well with Cowenton CEO Terry Neifeld. "We had a waiting list of people who wanted to open up new accounts," he said. "We had a bunch of people who wanted to do merger-conversions."

Mr. Neifeld said Cowenton's directors chose not to convert to stock and merge with another institution because depositors, technically the owners of mutual associations, would not have benefited from such a deal.

This reasoning, said Frank C. Bonaventure Jr., the lawyer who represented Cowenton Federal, will have ramifications for all mutuals considering merger-conversions.

"The point here that needs to be made is that when there is a sale of assets...the directors need to consider voluntary dissolution as an option," said Mr. Bonaventure, a partner with the Baltimore law firm of Ober, Kaler, Grimes & Shriver. "It's their fiduciary duty to do so."

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