State attempts to begin liquidation of First Maryland Savings and Loan were delayed today after lawyers for the thrift's stockholders and depositors won the chance to make a last-ditch effort to find a buyer for the crippled Silver Spring thrift.
Baltimore Circuit Court Judge Joseph H.H. Kaplan gave stockholders and depositors until June 19 to find an institution interested in taking over First Maryland, something the state has been trying to do since the thrift was placed in conservatorship last fall.
If no buyer is found, Kaplan said, he will place First Maryland in receivership, a necessary step toward liquidation, as the state requested today.
Kaplan agreed to the delay this afternoon during a one-hour, closed-door meeting with state officials and attorneys for depositors and stockholders. He announced the decision in open court and a hearing on the state's receivership petition was canceled.
State officials were openly skeptical that a buyer could be found, noting that numerous institutions initially interested in First Maryland have walked away from it after examining its loan portfolio. Melville Brown, director of the Maryland Deposit Insurance Fund, the state agency acting as conservator of First Maryland, today estimated the thrift's losses -- or its excess of debt over assets -- at $40 million to $60 million, well above the previous state estimate of $26 million.
"They could get more people to come in and kick the tires," but interested buyers are unlikely, said Brown. He noted that delaying receivership is likely to delay implementation of the state's plan to repay depositors.
Stockholders and at least some of the depositors are opposed to placing the thrift in receivership because interest accrual on the thrift's 35,083 accounts would immediately be halted, and large depositors would not have full access to their funds until late 1989.
Under a liquidation plan Brown outlined for reporters this afternoon, more than 60 percent of First Maryland depositors -- those with $5,000 or less in their accounts -- would be repaid all of their money six weeks after the thrift is placed in receivership. The state would fund the first payout of about $60 million by using MDIF funds and borrowing other money, pledging state general obligation bonds as credit.
Those depositors with more than $5,000 in First Maryland accounts would receive $5,000 in the first payout and further payments as First Maryland's assets are sold off. They would receive all their money -- up to $100,000 per account -- by late 1989. First Maryland has deposits of $281 million.
Benjamin L. Cardin, speaker of the Maryland House of Delegates, said tonight that while MDIF's proposed distribution plan will not have an impact on the state budgets for 1986 or 1987, it will require the state to borrow money this year. "It is certainly detrimental to the state to have to liquidate," said Cardin (D-Baltimore). "It's going to be very costly."
H. Robert Erwin Jr., an attorney representing a statewide group of depositors, said his clients have not given up hope that a buyer can be found and that they believe they may have found a way to "sweeten the deal" to get financial institutions interested in First Maryland.
Erwin said that at a meeting of about 350 depositors last Thursday night, the majority of depositors agreed to offer to invest 10 percent of their deposits in an institution that takes over First Maryland. Erwin said the depositors' committee will be contacting financial institutions during the next nine days to see if its plan generates interest. If all depositors participated, Erwin said, $30 million could be raised to help a buyer offset First Maryland's losses.
James Ulwick, attorney for former First Maryland chairman Julian M. Seidel, said his client has been in contact with financial institutions interested in First Maryland. "It is in everybody's interest -- whether it's my client or the depositors -- that a sale be executed rather than liquidation," Ulwick said.
The state has filed a $45 million suit against Seidel and other former First Maryland directors, alleging that they caused the thrift's insolvency by making insider loans, taking extravagant fees and investing in risky commercial ventures.