Baltimore Circuit Judge Joseph H. H. Kaplan ordered a halt today to withdrawal of funds deposited in the troubled Old Court Savings and Loan Association before May 13 and placed restrictions on interest payments on some deposits.
Kaplan also handed over day-to-day management of the company's operations for the next month to Chevy Chase Savings and Loan, the largest state-chartered thrift institution. Management problems at Old Court touched off a crisis in confidence in Maryland's 102 state-chartered thrifts last month.
Earlier, Maryland officials announced to thrift officials in Baltimore tough new rules designed to nudge the largest state savings and loan associations into obtaining federal insurance, sparking complaints from some thrifts that the guidelines will delay their winning federal protection.
Without Kaplan's rules, Old Court would lose at least $40 million in the next 30 days, according to John Faulkner, who is managing the S&L on behalf of a state-appointed conservator. Income is estimated at just over $10 million for that period, he said, but withdrawals, expenses and other obligations would reach almost $50 million.
Kaplan said his order would not affect money deposited in Old Court after May 13, when Gov. Harry Hughes ordered the $1,000 a month restrictions on state thrifts.
He limited to 5.5 percent interest payments on passbook savings and to certificates of deposits that have matured. His order does not affect CDs that have yet to mature.
David Freishtat, a lawyer representing Old Court partner Jeffrey Levitt and his wife, vigorously argued in court against bringing in the Chevy Chase management team. Chevy Chase would end up with inside information on real estate and financial dealings, creating a potential for bias and conflict of interest, he said.
Kaplan quickly dismissed these charges.
B.F. Saul II, president of Chevy Chase Savings and Loan, testified that he will assign appraisers, accountants, inspectors and lawyers to examine Old Court's records, loans and properties. About two dozen employes began inspections two days ago, he said.
His employes have found "extremely sloppy" records and "great gaps and voids" in documentation of loans, he said. Disbursements to contractors working on projects financed by Old Court have been made in a "very unorthodox manner," he said, in some cases paying money without checking to see if the work had been done.
In making his decision, Kaplan said in court that this situation means an "in-depth evaluation of Old Court's portfolio has to be accomplished on a very rapid basis . . . . No one really has a handle on it at this point."
In the Baltimore meeting, Frederick L. Dewberry, secretary of licensing and regulation, and Ejner J. Johnson, chief of Gov. Harry Hughes' staff, announced the insurance guidelines.
The rules give those savings and loan associations that need extra cash to qualify for federal insurance until July 8 to apply for money from a $100 million state fund.
The pool was created by the recent special session of the General Assembly which also abolished the private Maryland Savings-Share Insurance Corp. in the wake of problems in the industry. The legislature also passed measures designed to prod S&Ls into the more stable system of federal insurance.
However, many thrifts, barred by the state from recovering money they paid into MSSIC's own insurance fund, have been unable to receive approval from the Federal Savings & Loan Insurance Corp. because of FSLIC's requirement that associations have 5 percent more in accessible funds than they have in liabilities.
The state officials told thrift officers today that they are reluctant to dip into the new $100 million pool and will do so only if a thrift satisfies all FSLIC requirements except the one on net worth.
Spending all of the $100 million fund to assist thrifts could severely limit the state's ability to issue bonds for construction projects, threaten Maryland's AAA bond rating or spark an increase in state tax rates, Johnson said.
Thrifts that do not meet the FSLIC threshold may merge with another association, raise capital by selling stock or give the state a net worth certificate, a kind of IOU to the state government to help lift a thrift to the FSLIC threshold.
Mutual, or depositor-owned, associations will be given first priority for the funds.
Officers from several large associations owned by stockholders complained about the rules.
"We can raise the capital, but it will take months to do it," said Arthur Silber, president of Chesapeake Savings and Loan. "Everyone is more concerned about the state bond rating right now than recognizing we have $2 billion in cash that is totally tied up."