Maryland state officials, poised to pronounce the official death of Old Court Savings and Loan by forcing the crippled Baltimore thrift into receivership, have begun outlining a series of unusual financing plans to allow the association's 50,000 depositors some access to their frozen funds.
The Maryland Deposit Insurance Fund (MDIF), a state agency that is dismantling Old Court's real estate empire in an effort to raise capital, is expected to ask Baltimore Circuit Court Judge Joseph H.H. Kaplan later this week to place the savings association in receivership, state officials said yesterday.
Receivership, which is tantamount to bankruptcy, would have the immediate effect of reducing to zero the amount of interest paid on most of the 70,000 accounts in the thrift. MDIF, the probable receiver, would be granted expanded powers to liquidate the association's assets to raise cash.
MDIF Director Melville S. Brown said MDIF may eventually create what is known as an "asset corporation," the function of which would be to sell Old Court assets carefully for a maximum return, thus raising cash to pay off depositors.
In the case of Old Court's many out-of-state depositors, the state could transfer deposits to banks in those states, and the asset corporation could simultaneously issue those banks shares of stock equal to the value of the deposits, said Brown.
Then, as Old Court assets are sold off, the asset corporation could redeem the stock shares and the local banks could pay off depositors, said Brown.
Such an "untraditional" financing plan would not require approval by the Maryland General Assembly, but the legislature may be asked to authorize additional bonds to back an asset corporation, he said.
Receivership, said Brown, "means the S&L can't possibly be saved and resurrected as Old Court II."
Meanwhile yesterday, Gov. Harry Hughes returned to Annapolis from meetings in New York with the nation's two leading bond rating houses fairly confident that the state's thrift industry crisis, now of nearly six months' duration, will not cost Maryland the coveted AAA bond rating it has held since 1940.
Hughes and other state officials briefed representatives from Standard and Poor Inc. and Moody's Investors Service Inc. on his administration's efforts to limit the fiscal impact of the savings and loan crisis.
"I think we were able to convince them we are pretty far out of the woods," said Hughes this afternoon, adding that he is "optimistic" the state will retain the AAA rating that guarantees it the most favorable rate of interest when it goes into the bond market to borrow money for construction projects. The state currently has $2.2 billion in bonded indebtedness, not including interest.
Although the governor said the rating houses are unlikely to review the state's credit rating before February, when Maryland will attempt to sell bonds, Standard and Poor Vice President Richard Raphael said yesterday the firm will formally review the rating "within a month."
Raphael said the state's thrift-related losses, which have been estimated at about $300 million, amount to "a lot of money, but on the other hand, the state has a lot of resources. We will have to look at this on balance."
Hughes also said that federal auditors are nearing the end of a review of First Maryland Savings and Loan, a Silver Spring thrift where deposits are frozen. The auditoris are expected to advise him in the next few days of what it would take for the thrift to get federal insurance.
Also yesterday, the General Assembly formally concluded its second special session on the thrift crisis with legislative leaders proposing several approaches to free depositor accounts at the three savings and loans still operating under state conservatorship or withdrawal bans.
House Speaker Benjamin L. Cardin (D-Baltimore) and Senate President Melvin A. Steinberg (D-Baltimore County) offered several proposals under which local banks might assume some of the branches or deposit bases of the thrifts, or extend lines of credit to affected depositors with the state paying the interest charges.
Cardin described the proposals as "the legislature's game plan to get depositors their money back and minimize state costs."