WASHINGTON - Federal regulators may clamp down on depositor-owned thrifts that switch to state charters to take advantage of a spate of generous state laws governing stock conversions.

Both the Federal Deposit Insurance Corp. and the Office of Thrift Supervision - alarmed by reports of managements changing mutual thrifts' charters to capture large blocks of free or low-priced stock for themselves - have opened investigations aimed at producing new rules.

"What we want to do, particularly in the conversion area, is to work with the FDIC to develop standard rules that apply to all institutions," Jonathan L. Fiechter, acting director of the OTS, said in an interview last week. "Regulatory arbitrage does not make any sense."

Insider Windfalls

The FDIC's largest concern about such deals is "an institution that would first of all change to a state charter to circumvent the OTS and then do some type of a [stock] conversion where the insiders reap windfall profits and leave very little for the depositors," according to an FDIC source.

OTS rules allow depositors to buy stock ahead of the mutual thrift's executives. They also set limits on the amount that insiders can buy. Under federal rules, management may be given free stock a maximum of 4% of the value of the deal, but under state rules there are often no explicit limits.

Provident Bank recently offered mutual thrift managers in three states 15% of the value of deals in which the thrift converted to stock at the same time it merged with Provident.

Patchwork Regulation

The Provident deals and others like them are possible in nine states that have recently passed laws creating state-chartered savings banks. They are North Carolina, Wisconsin, Illinois, Kentucky, Ohio, Pennsylvania, Indiana, New Jersey, and Texas.

Traditionally, state-chartered savings banks have been found primarily in New York and New England, but the 1989 federal thrift bailout law allowed them for the first time in other states. Texas, which passed its law in September, is the most recent addition to the list of states with the new charters.

OTS regulations govern all federally chartered thrifts as well as state-chartered savings and loans that convert to stock form, but the regulations do not govern state-chartered savings banks. The FDIC serves as a secondary regulator for state-chartered thrifts.

While no final decisions have been made on whether new rules are necessary, officials at both the OTS and the FDIC will soon complete their inquiries on the matter, which could result in new guidelines for state-chartered savings banks.

Four Areas of Concern

The OTS is drafting an advanced notice of proposed rulemaking, which is awaiting the agency's final approval. It would request public comment on modifying the agency's conversion regulations.

The FDIC staff is drafting a policy statement, which would have to be voted on by the FDIC board before taking effect, an FDIC spokesman said. He refused to provide details on the proposal, but an FDIC source said it will address four areas of concern.

The FDIC proposal will call for an independent appraisal of the mutual thrift's value, which some states do not now require.

"If the shares are priced too low, that will increase the temptation for the insiders to get a disproportionate share," the source said. As a result, "The institution would not get all the capital that it should."

If the shares are priced too high and many are bought by depositors or other unsophisticated investors, the stock price could drop dramatically, or the deal could fall through, the source said.

Secondly, the FDIC statement will outline the apportionment of shares issued and will remind directors and officers of their fiduciary duty to their mutual thrift's owners - its account holders.

"We would prefer that the insiders don't capture most of the stock," the agency source said. "If anyone should get the lion's share of the stock rights, it should be the longstanding account holder."

The proposal will ask for timely disclosure of all relevant and pertinent information.

"In most cases, this is done anyhow," the source said. "There have been some cases in the past where the disclosure has not been adequate."

Lastly, the agency will ask the thrifts to present a business plan. "We just like to know what their long-term plan is to invest the proceeds. We remember back in New England some 10 years ago," the source said, when mutuals that went public "ended up making some bad investments. We would not like that to be repeated."

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