The Maryland Senate, shrugging aside mounting pressure from Gov. Harry Hughes, the House of Delegates and hundreds of outraged depositors, today rallied behind its leader's decision to reject an agreement allowing Chase Manhattan Corp. to acquire three beleaguered savings and loan associations under a plan that would include a payment of $25 million from the state.
The Senate, continuing to insist that a $25 million state payment to Chase may be unnecessary, approved separate legislation by a 44-to-0 vote that would strip Chase and other out-of-state banks of the opportunity to begin limited banking here under a law adopted this year. Senators said the new measure would increase pressure on Chase to return to Maryland with a less excessive takeover proposal by removing "the back door" under which it could enter the potentially profitable Maryland market.
Ignoring a tongue-lashing from the governor and an outcry by hundreds of depositors desperate for their money now frozen in the thrifts, the Senate headed toward a showdown with the governor and House that could extend well into the weekend the special legislative session that began today.
The confrontation added uncertainty to the state's five-month crisis, which has affected many of the state's 102 thrifts that were privately insured, and further clouded the Hughes' administration's efforts to contain it.
Uncharacteristically, Hughes took a swipe at Senate President Melvin A. Steinberg (D-Baltimore County), whose public rejection of the Chase deal on Wednesday has strained his historically good relations with the governor. The governor, in a speech to both the Senate and House, referred to Steinberg's decision, which was backed by most members of his leadership, as "political posturing."
"In the last 24 hours my friend and one of your esteemed colleagues has sounded retreat," said Hughes. "I suggest he review the matter, pick up his trumpet and sound the charge."
That prompted an immediate riposte from Steinberg after the Senate returned to its chamber following Hughes' 14-minute speech.
"The reason some people haven't heard the bugle," Steinberg told his colleagues from the Senate podium, "is because their ears are clogged listening to the charges of the 1986 election instead of the issues before us." Steinberg's reply to Hughes, an allusion to the governor's expected U.S. Senate bid, drew a standing ovation from the senators.
The House, urged on by Hughes, had approved 125 to 6 the administration's proposal to permit Chase to take over Merritt Commercial Savings and Loan Association and two smaller thrifts and convert them into a full-service banking operation.
Though somewhat divided, the House all along has appeared ready to accept the governor's logic that the state has little choice but to accept the Chase proposition if it wants to dig out from a potential liability of $100 million and free up $500 million in deposits at the three thrifts.
The jockeying in the legislature came amid several other developments, including an announcement by First Maryland Savings and Loan of Silver Spring that it would ask the state to extend a 60-day ban on withdrawals, and some interim progress in resolving the status of Community Savings and Loan of Bethesda.
Alan S. Kerxton, the executive vice president of First Maryland, said the Silver Spring thrift, whose acquisition talks with a subsidiary of Citicorp collapsed last week, would ask for the withdrawal ban extension Friday. Kerxton said that First Maryland has "reasonable prospects for obtaining" federal insurance.
Hughes, in his address to the legislature, announced that the state has reached an agreement with a group of investors in Community's real estate subsidiary, EPIC, on the framework of a plan designed to extricate the thrift from the collapsed subsidiary. Experts said if the separation takes effect, the state would be freed of entanglements stemming from legal claims against EPIC, but still would have a sizable potential loss in the thrift of about $60 million.
Also today, officials from two large savings and loans that have obtained federal insurance, Chevy Chase and Second National, made overtures to the state for takeovers of Friendship and Chesapeake savings and loans. Chesapeake and Friendship, the other two thrifts in the Chase proposal, were placed under 20-day withdrawal freezes Wednesday night.
Hughes, speaking in unusually blunt and tough terms to the legislature, sought to revive prospects for the Chase proposal, which the bank's negotiator left on the table even as most of the bank's team returned to New York Wednesday.
"Chase Manhattan is the only suitor . . . . If we discourage Chase, our only alternative will be liquidation of Merritt , a three-to-five-year process," said Hughes.
The governor said rejection of the proposal would "freeze deposits for an extended time, cause untold suffering to its depositors, and in the case of liquidation expose the taxpayers to a huge potential loss."
The differences now festering between the Senate on one side and the House and governor on the other were illustrated by the reception given members of the Senate as they filed into the House chamber for Hughes' address. They were greeted with prolonged booing and hissing. While House members frequently applauded Hughes' speech, senators, with few exceptions, sat on their hands.
House Speaker Benjamin L. Cardin (D-Baltimore) said Steinberg's action had "made it more difficult for us. He added to the pressure, and we're already in a pressure cooker." Cardin said the House has "overwhelming" support for the economics of the Chase deal, though members have qualms about the "morality" of provisions that would give four properties to Merritt owner Gerald S. Klein, who is perceived as having contributed to Merritt's troubles.
Many senators were positively giddy today about their high-stakes brinksmanship with the governor and the House.
"You know on the video games they have a button to put you into hyper-space?" said Sen. Dennis Rasmussen (D-Baltimore County). "That's where we are, in hyper-space."
Steinberg's support was not unanimous, however. Sen. Howard A. Denis (R-Montgomery), a frequent Hughes critic, described the Senate as being "in cloud cuckoo land" for repudiating the Chase agreement. "A bunker mentality has set in. They are reinforcing each other with their own rhetoric and they are courting disaster for the state."
The Senate, which adjourned at 6:30 tonight, is not expected to take up Hughes' bill until Friday, when it will move to strip the $25 million payment to Chase from the measure. Delaying a day is part of a strategy to give the Hughes administration as much time as possible to produce information on the deal requested by the legislature. If that information is not provided, one senator said, the Senate's position will be that much stronger.
Steinberg himself dropped hints today that he has inside information on Merritt and its owner that would show the Senate was correct to derail the transaction.
There also was considerable speculation here today that Steinberg, a canny labor negotiator, would ultimately find a graceful way out that would make him the hero of this drama.
But many legislators predicted that the Chase issue would be decided during a legislative version of a Mexican standoff when the different bills expected to be passed by the two houses end up in a conference committee sometime this weekend.
Concluded Sen. Laurence Levitan (D-Montgomery): "It really is a crazy situation."