Transohio Savings Bank has been ordered by its regulator to stop paying interest on $11.7 million in uninsured subordinated capital notes sold through its branch system.

The temporary cease-anddesist order, issued by the Office of Thrift Supervision on May 29, prevented the capitalstrapped thrift from paying $139,294 in interest for May to about 1,400 bondholders.

The order is to "protect the taxpayers as much as we can by preserving the assets," an OTS spokesman said.

Transohio, based in Cleveland, ranks first in asset size among Ohio thrifts. It has been on the selling block for several months. TransCapital Financial Corp., the thrift's Miami-based holding company, said in recent Securities and Exchange Commission documents that several parties are interested in parts of Transohio and are conducting due diligence.

Payments Deemed `Unsafe'

Aside from the May interest payment on the subordinated capital notes, the cease-anddesist order affects $260,525 in monthly and quarterly cash interest payments between June and September on nine-year to 15-year notes.

After losing $103 million last year, the thrift saw a $173.4 million net runoff of deposits in the first quarter.

The OTS order said the payments on capital notes, which were sold at an 11% yield, are "unsafe and unsound," and would violate the law if made. But no other details were offered. A hearing into the matter is expected to be held this summer.

The $3.8 billion-asset thrift intends to appeal the decision, said William D. Wooldredge, who has been president and chief executive of Transohio since December.

"We had hoped very much that they would have allowed us to continue making interest payments," he said.

Transohio sold the notes through its branches in August 1988, in minimum denominations of $1,000, Mr. Wooldredge said.

Investors had the option of having interest paid at maturity with interest compounded monthly and added to principal. As a result, the principal amount of the capital notes had increased to about $14 million as of March 31, according to the OTS.

Transohio added to its string of losses with a $3.7 million deficit in the 1992 first quarter. Its tangible capital was a negative $12 million at the end of the first quarter, and equity capital was a negative $2.1 million.

In February, the thrift agreed to a consent order that gave the OTS authority to seize the institution if an acceptable acquirer could not be found by May 7.

The S&L has accordingly been placed in the regulators' accelerated resolution program, which is designed to sell troubled S&Ls before their franchise value - including 59 branches in Transohio's case - erodes.

The accelerated sale program was put on hold when Congress failed to allocate more funds for the thrift industry bailout.

OTS Director T. Timothy Ryan said earlier this week that his agency would begin seizing' troubled S&Ls at a rate of four to five a week and placing them into conservatorships of the Resolution Trust Corp. It is not known where Transohio might fit into the schedule.

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