With his administration suddenly the caretaker of a third faltering savings and loan association, Gov. Harry Hughes blamed Maryland's severe thrift industry crisis yesterday on the "unbounding greed" of several thrift executives. They will be held accountable, he said, for "the costs and the fear and frustration they have caused" to tens of thousands of depositors.
Hughes said he was optimistic that the four-month-old savings and loan crisis was under control and that he had "no indication of any other" association that would come under state conservatorship. "This will not happen again," the governor said at a press conference in Annapolis.
However, state officials conceded yesterday that Maryland's takeover Thursday night of Community Savings & Loan of Bethesda and all of its subsidiaries, including Equity Programs Investment Corp. (EPIC), has placed an enormous administrative, legal and financial burden on the state that could take months to untangle. The state is now responsible for roughly $1.5 billion in assets of the three thrifts it now manages: Community, Old Court Savings and Loan and Merritt Commercial Savings and Loan.
One indication of how difficult such management can be came as lawyers for the state were in court in Maryland late Thursday to bring Community under state control. While that proceeding dragged, EPIC lawyers were in federal bankruptcy court in Alexandria in an apparently successful effort to insulate 341 limited partnerships from Maryland's attempt to gain control of them and their assets.
The day-to-day manager of the three troubled thrifts is Melville S. Brown, a Miami banker, whom Hughes swore in yesterday as director of the Maryland Deposit Insurance Fund (MDIF). Brown will administer the $190 million state-backed pool that will be used to defray large losses incurred by Maryland thrifts.
Earlier, Hughes announced that the giant Chase Manhattan Corp. sent a letter of intent this week to purchase Merritt.
The governor also relaxed restrictions he imposed in May on withdrawals from some savings and loans, allowing depositors to exceed the $1,000-a-month limit to pay for completion of home construction and their 1984-86 local, state and federal taxes. Customers must sign a written statement, under perjury penalties, swearing the withdrawals will be used for no other purpose, Hughes said.
Hughes stressed today, as he has from the outset of the crisis, that MDIF is backing every savings and loan deposit up to $100,000.
About 137,000 depositors cannot get their money out of the four thrifts that are effectively shut down -- Old Court, Merritt, Community, which are the three in conservatorship, and First Maryland Savings and Loan of Silver Spring, where Hughes imposed a 60-day deposit freeze last month. Thousands more are subject to the limit on withdrawals of $1,000 per month per account at 21 thrifts.
Hughes announced today that a large New York bank is "very seriously interested" in acquiring First Maryland and is "hastily concluding" negotiations with the thrift.
The sale of First Maryland and Merritt would be good news for depositors at both, who could have access again to their money, and for a state government buffeted by the disclosure this week that Old Court is $175 million in debt and by the problems of Community and its EPIC subsidiaries.
"It's a hell of a problem," said Thomas H. Maddux, Hughes' blunt-spoken secretary for economic and community development. "The good news is that we've isolated the problem to Old Court and Community."
Benjamin Bialek, a key adviser to Hughes and one of the architects of the Community conservatorship, echoed Maddux, saying: "The down side to a conservatorship is that it's a tremendous management headache. We're stretched thin already with our resources."
The governor left unanswered the questions of precisely what savings and loan debts the state may have to cover and the degree to which MDIF is vulnerable if some of the savings and loans now attempting to qualify for federal insurance fail to do so.
Asked by a reporter whether Maryland taxpayers may have to pay the bill on some association losses, Hughes responded that he hoped not. "I can't guarantee it, though," he said. "I can't guarantee it."
The first thrift taken over by the state, Old Court Savings & Loan of Baltimore, faces losses of about $175 million, according to a management team sent in to review its portfolio. Baltimore Circuit Court Judge Joseph H.H. Kaplan, who is managing the conservatorship of Old Court, has estimated that Old Court's losses could go as high as $200 million, which would consume most, if not all, of the MDIF fund.
Norm Silverstein, an MDIF spokesman, said the $20 million to $30 million the state may put up as part of the Chase-Merritt deal will also come out of the state fund.
The focus of the thrift crisis is expected to shift soon to the General Assembly, which Hughes said he will call into special session to approve enabling legislation for a Merritt or First Maryland sale.
Legislative leaders, who publicly have been supportive of Hughes' management of the savings and loan crisis, endorsed the Community conservatorship today as a step toward giving the government some degree of control over the thrift.
"We made a commitment back in May when this crisis started and the conservatorship is part of that promise," said State Senate President Melvin A. Steinberg (D-Baltimore). "It would have been irresponsible not to intervene."
"All of the bricks were in the load back in May," when reports of mismanagement at Old Court sparked runs at many thrifts around the state, said Steinberg. "If anything, we've reduced the liability to the state."
As they have in the past, thoughts of the cost to the state will dominate the strategy of state regulators as they try to deal with Community in the weeks ahead, those regulators said.
MDIF director Brown pointed to the state's new control over Community as evidence of "the kind of control we need to have to reduce our ultimate liability. That's the job before us."