The Hughes administration, after failing to dilute a politically troublesome part of the deal, came to terms with the Chase Manhattan Corp. today on a plan under which the giant New York bank holding company will acquire a crippled Baltimore savings and loan association and two smaller, healthier thrifts.
A state official executed the agreement tonight, and Chase's representative is expected to sign it Tuesday. The acquisition of Merritt Commercial Savings and Loan Association still must be approved by the General Assembly, and legislative leaders were working throughout the day to pave the way for a special session to take up the necessary banking legislation Thursday.
Stanley Burns, a Chase vice president who heads the bank's negotiating team, said tonight there are "no open issues" remaining with the administration of Gov. Harry Hughes.
"We're there," said Burns.
State officials still were attempting to patch up negotiations between a second large New York bank, Citicorp, and the First Maryland Savings and Loan Association.
Citicorp officials broke off the acquisition talks Thursday night because of disagreements with First Maryland owner Julian Seidel over the value of some of the thrift's investments.
A 60-day freeze on withdrawals at First Maryland runs out in about two weeks, and unless the talks with Citicorp are resumed, the state is likely to place the Silver Spring savings and loan association into conservatorship.
The agreement with Chase Manhattan came after a last-ditch attempt by the Hughes administration to make more palatable a provision that assigns to Chase the state's right to pursue civil liability claims against Merritt owner Gerald S. Klein.
Sources said that Chase Manhattan prevailed in its view that it alone needs the right to sue Klein if the bank is to ensure the Merritt owner's cooperation in working out some of the thrift's complex real estate ventures.
"Chase tried to work with them the administration ," the source said. "But it's like being a little bit pregnant. You either are or you aren't. You either assign the claims or you don't."
"We accepted Chase's logic," said one administration official.
The issue is a politically nettlesome one for Hughes and legislators who expect to face the voters in 1986. Although anxious to unload Merritt and free up $500 million in deposits at the three thrifts, they are fearful of approving any arrangement that benefits Klein, whose thrift has been in state conservatorship since May.
"It isn't something you particularly like," said Hughes today. "But I wouldn't want it the Chase deal to fall through just on this."
Under the agreement, Chase Manhattan will acquire Merritt, Friendship Savings and Loan of Bethesda and Chesapeake Savings and Loan of Annapolis.
The New York bank, the nation's third largest, will receive $29 million from two thrift industry insurance funds now controlled by the state, and in exchange will assume what it estimates is a $76 million liability at Merritt.
The General Assembly, as a condition of taking up the legislation that would allow Chase to convert the three thrifts into a full-service commercial banking operation, has demanded an independent appraisal of the proposal, as well as other documents.
The conditions include a statement describing Klein's finances, a plan by the Hughes administration to relieve depositor hardships at two savings and loan associations that are still under state conservatorship and Chase's business plan for the new bank it will create in Maryland.
That independent appraisal is a key element to how the legislature will view the Chase agreement because of continuing questions over the state's plan to pay Chase $29 million and over the bank's arrangements with Klein, who will keep four commercial properties as part of the deal.
Representatives of the investment house of Legg Mason, which conducted the appraisal, yesterday put Chase's potential losses in acquiring Merritt at $10 million to $20 million less than what the bank has estimated.
But Legg Mason Vice President Doug Petty repeatedly assured the committees the state is getting a reasonable deal for its $29 million.
He told legislators he was not in a position to compare specifically his own firm's evaluation with Chase's estimate of Merritt's losses because he is not familiar with "the assumptions" used by Chase in evaluating the thrift's far-flung assets.
Despite numerous concerns raised over the past week, legislative leaders expect the Chase deal to be approved, though not without some political pain.
"It's going to be a very tough session to accomplish because of the tangential political issues," said Senate President Melvin A. Steinberg. "But I believe inaction could be worse."
"This thing is like a bedbug," added Del. Patricia Sher (D-Montgomery). "If you don't do something it bites you and if you smack it you end up with a stinking hand."