Citing "the absolute chaos in the files" of Old Court Savings & Loan Association, attorneys for a state-appointed conservator today asked for, and received, more help in untangling the web of confusing investment records at the Baltimore-based thrift.
Acting on the request of the Maryland Deposit Insurance Fund Corp. (MDIF), the state-appointed conservator, Baltimore City Circuit Court Judge Joseph H.H. Kaplan named Second National Building and Loan of Annapolis to assist Chevy Chase Savings and Loan, which had already been brought in to evaluate Old Court's investments.
B. Francis Saul II, president of Chevy Chase S&L, told Kaplan that after 30 days of going over records, 15 to 20 financial professionals from his company -- "most of them working full time, nights and weekends" -- have "only scratched the surface" in unearthing Old Court projects, which stretch from Florida to New York.
Saul said it will take "an incredible length of time to dig through this morass . . . . We have found out about some investments by reading the newspapers," including a report Saturday in The Washington Post about several airplanes owned by Old Court subsidiaries, he said.
Saul said the process of examining Old Court assets "will go on a long time." Determining "the legal status of who the owner is is so murky it could take a year."
Second National will look specifically at about 20 major investments of Old Court in the Ocean City area.
The conservator was appointed May 13, after Jeffrey A. Levitt was removed as president of Old Court following reports of insider deals and mismanagement that led to runs at the second largest of the 102 financial institutions that had been insured by the now-defunct Maryland Savings-Share Insurance Corp. (MSSIC).
Chevy Chase, the state's largest thrift, was named to manage Old Court a month ago because Old Court "effectively has no organization to run it," said Shale D. Stiller, attorney for the conservator.
One consequence of "the absolute chaos in the files," Stiller said, is that Old Court depositors -- some of whom are not covered by insurance because they have more than $100,000 in their accounts -- cannot get their money out as soon as they would like. Stiller said the conservator "intends to foreclose very soon" on some of the worst investments. But he said there will be no general liquidation . . . there are a lot of scavengers out there hoping we'll sell off right away, at bargain basement prices."
Chevy Chase, which also got a 30-day renewal today on its contract to manage the affairs of Old Court for the conservator, is "putting more resources than we should" into the job, Saul said. "The people from Chevy Chase some day will have to go back to Washington and their regular jobs."
Hank Sanderson, senior vice president of Second National, and chief operating officer of its service company, said his employes "can help shorten the time frame" for analyzing some 20 Old Court projects in Ocean City. He said Second National is experienced in evaluating properties there because 70 percent of its loans are made on the Eastern Shore.
David Freishtat, an attorney for Levitt, objected to the appointment of Second National, charging that its president, Henry Berliner, has "demonstrated bias" against Old Court.
Freishtat introduced a copy of a June 30 newspaper article in which Berliner was quoted as saying some of Old Court's Eastern Shore activities represented "a true diversion of banking principles."
Stiller said Second National "has no conceivable interest in hurting Old Court. The higher the value it gets out, the better off everybody is."
Kaplan agreed, noting that it is in the best interests of both Chevy Chase and Second National, as former members of MSSIC and contributors to its $100 million insurance pot, "to see that the highest price is obtained for these properties."
Kaplan added that he is "not going to punish Old Court's shareholders or its conservator" by denying Chevy Chase the help it needs in managing the thrift.
After the hearing, Stiller said a conflict could arise between Old Court depositors and the state "after we know" how many of the former MSSIC thrifts are not going to win coverage by the Federal Savings and Loan Insurance Corp. So far, only 10, including Chevy Chase and Second National, have qualified for the federal insurance.
Stiller said it may be in the depositors' best interest to get their money back sooner than the state wants to release any of the insurance money designated to cover losses. He said the state will want to know the extent of its liability, and whether its fund will cover the losses. "You don't want to slice that pie until you know the extent of the damages," Stiller said.
In another development, state officials extended the deadline for thrifts to apply for state assistance in meeting the net worth requirement for federal insurance.
Restrictions are still in place on withdrawals from about one-third of the formerly privately insured thrifts, and MDIF head Frederick Dewberry said he could not give any estimate of how long it will be before there will be a significant change in numbers.