Chase Manhattan Corp., the third-largest bank company in the nation, is in "advance negotiations" with Maryland officials to take over the troubled Merritt Commercial Savings and Loan Association, according to banking sources.
Chase Manhattan, which is pursuing Merritt in order to establish an early commercial banking foothold in the state, is working to complete a deal that would include the takeover of other, healthier thrift institutions as well as Merritt to give it a broad geographic base in the state.
A key element of the negotiations is the extent to which the state would protect Chase Manhattan from assuming some of the riskier loans that have been made by Merritt, which voluntarily went into state conservatorship in May during Maryland's savings and loan crisis.
Hughes administration officials, who are faced with a protracted thrift crisis involving the likely inability of some of the state's largest associations to meet federal insurance requirements, refused to comment directly on the negotiations with Chase Manhattan. Thomas H. Maddux, the state's secretary of economic and community development who is heading the negotiations, would say only, "We are having serious conversations with Chase and others."
However, Maddux did say that he is "hoping to have something definitive within 10 days to two weeks."
Chase, which would be allowed to begin limited branch banking in Maryland by next July if it meets certain investment and job requirements imposed by the legislature last winter, is said to be willing to pay for the privilege of establishing branch banking in Maryland ahead of that schedule. But banking sources said the company is not willing to assume the full cost of a Merritt takeover.
Chase's price for taking Merritt off the hands of state officials -- and with it a potentially massive state expense -- is the ability to package it with some other thrift institutions that are fundamentally sound but that presently do not meet the requirements for federal insurance.
Banking sources said Chase Manhattan is interested in acquiring medium-size thrift institutions with assets in the range of $100 million that would give it a presence in major markets. Among the institutions Chase Manhattan is said to be interested in acquiring is Chesapeake Savings and Loan Association of Annapolis, which has $95 million in assets.
Neither Chase Manhattan nor the state has put a firm dollar offer for Merritt on the table, according to banking sources, who said the New York bank with $86.3 billion in assets is nearing completion of its analysis of what Merritt is worth.
Finalization of a deal with Chase Manhattan "could come in a month, a week, even three months," said one source. "The timing is really up to the state. Chase has said it's willing to talk turkey. The talks are in the advance negotiation stage."
If a deal is consummated with Chase Manhattan or another out-of-state bank, it would require enactment of legislation permitting the conversion of savings and loan associationss to commercial bank branches. There have been increasing signals in recent days that Gov. Harry Hughes might call the General Assembly into special session within the next few weeks for that purpose.
The Hughes administration is apparently hoping to put together within the next two weeks a package of solutions to the lingering savings and loan crisis that has proved more nettlesome than originally thought in May, when reports of management changes at Baltimore's Old Court Savings and Loan Association triggered widespread runs on deposits.
"I would like us to show some tangible progress on all fronts," said Maddux. "The process is taking more time than I would like."
Legislation enacted in May requires all state-chartered savings and loan associationss with more than $40 million in assets to acquire federal insurance by December. But some of the state's largest thrift institutions are having difficulty meeting federal requirements. There have been persistent reports recently by savings and loan officials and others in the financial community that at least one thrift, besides Merritt and Old Court, may be placed into conservatorship soon.
The legislature in May also authorized a $100 million bond program to help institutions meet a 5 percent federal "net worth" requirement, and announcement of which thrift institutions will have access to that program could be part of the comprehensive solution alluded to by Maddux.
The state, which has guaranteed all savings and loan association accounts up to $100,000, has been earnestly seeking a buyer for both Old Court and Merritt. Though it is virtually conceded that the state will not find a buyer for Old Court and will have to manage it for up to several years, Merritt is a more salable property.
In a related development, it was announced Tuesday that two top officials of the former private insurance agency that backed the state-chartered thrift institutions will soon be leaving the state agency that replaced the insurance corporation.
Charles C. Hogg 2nd and Paul V. Trice, who were retained by the Maryland Deposit Insurance Corporation when it assumed the role of the Maryland Savings-Share Insurance Corporation, will leave MDIF at the end of August, said Frederick Dewberry, its acting director.
"It was intended all along that there would be new leadership in here," said Dewberry, who said the move had nothing to do with MSSIC's reported failure in policing the industry or the high state salaries earned by Hogg and Trice in their temporary state jobs. Hogg was being paid at the rate of $91,000 per year, and Trice at the rate of $52,500.
Also today, Presidential Savings and Loan Association of Bethesda won federal insurance.
The thrift institution, with assets of $2.6 million, is the 14th state-chartered association to get federal insurance.