A rising tide of thrifts could start flipping their charters now that Congress has passed legislation significantly reducing a potentially large tax liability, observers said.

Analysts and thrift executives said they're expecting perhaps several hundred thrifts, large and small, to convert to banks in view of passage of the less stringent mandate to recapture reserves for bad debts.

"There are many institutions that would like to convert," said Richard Garabedian, a lawyer at Silver Freedman & Taff in Washington who represents thrifts, "but the cost was just too prohibitive in light of the bad-debt recapture. I would expect that you'll see many" conversions, "and that will encourage others to follow."

The thrift tax provision is part of minimum wage legislation that passed both houses Friday. President Clinton is expected to sign it.

It calls for all thrifts to "recapture," or record as income, only reserves set aside after 1987, placing the rest in regular loan-loss reserves. That means only about 20% of the total would be taxed, saving the nation's 2,000 thrifts billions of dollars.

"That says to me, Why not flip?" said C. William Landefeld, president and chief executive of Citizens Savings Bank in Normal, Ill. He is encouraging his directors to consider it. "You're going to have to pay the cost" of reserve recapture anyway, he said, so "this is probably the time to go ahead and convert your charter."

Many thrift executives say they've wanted to convert to banks for some time. to free their institutions from the lending restrictions in thrift charters. In fact, many have begun courting commercial loans in an effort to diversify their balance sheets and boost earnings.

But most have held back from the final step because it would have required subjecting all their reserves, amassed over as much as 60 years, to burdensome taxes. Banks don't have tax-exempt bad-debt reserves.

"That was an important piece of legislation for us," said James S. Haahr, chairman and president of First Midwest Financial Inc., Storm Lake, Iowa. "We want to be a commercial bank, and the sooner we get there, the better off we will be."

Observers agreed that bank charters would give most institutions greater flexibility, particularly on lending. Only 10% of a thrift's assets can be in more profitable commercial loans, while 65% must be in mortgages.

"I don't think there's any doubt about it," said David B. Barbour, president and chief executive of Classic Bancshares, a thrift holding company in Ashland, Ky. "There will no longer be any advantages to being a thrift. All the advantages will go to being a bank."

The bill's passage could also ease consolidation in the industry. Observers agreed that many potential thrift acquisitions by banks had been held up by concern over the cost of reserve recapture. And banks might be willing to pay higher premiums now that the issue is resolved, Mr. Garabedian said.

But observers aren't predicting that every thrift in the country will flip charters. In some cases, a "fear of the unknown" will hold them back, Mr. Garabedian noted, particularly since a charter flip brings in a new regulator.

Many thrifts will also likely wait to see what Congress does with legislation to resolve the deposit insurance fund crisis and merge the funds and charters. That's because thrifts that switch charters now must retain Savings Association Insurance Fund coverage until the fund is recapitalized.

And others won't want to lose the extra powers that come with a unitary thrift holding company charter, such as the ability to own or invest in companies whose operations are unrelated to banking.

Also, Mr. Barbour said he was skeptical that many small thrifts would convert because they lack the background or resources to succeed as commercial banks.

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