A last-minute personal plea by Gov. Harrry Hughes to state Senate President Melvin A. Steinberg early today appeared to have convinced Steinberg to abandon his opposition to the sale of three thrifts to Chase Manhattan Corp. and set the stage for the General Assembly to approve the transaction.
Hughes, meeting with Steinberg (D-Baltimore) and other Senate leaders in his State House office, promised to seek concessions from Chase as part of an agreement under which the giant New York bank would purchase Merritt Commercial Savings and Loan of Baltimore and two smaller thrifts. The governor's pledge appeared to clinch the Senate's approval of the Chase deal, which it has blocked for the past three days.
Steinberg's reversal came less than four hours after he made an impassioned defense of his earlier position before an approving audience of senators and capped a roller coaster of a day that swung from a frenetic pace of closed-door meetings to hours of boring inactivity and back again.
Meanwhile Saturday, officials revealed that state and federal law enforcement authorities have begun a criminal investigation into Merritt and its chief owner, Gerald Klein.
Hughes authorized state Attorney General Stephen H. Sachs to begin the investigation of the Baltimore thrift on Sept. 4, the officials said, after an informal probe during the summer, and subpoenas have been issued in the investigation.
Neither Klein nor his attorney, Zelig Robinson, could be reached for comment.
Reaction came swiftly after Steinberg's meeting with the governor.
"At least we didn't cave in immediately," said state Sen. Laurence Levitan (D-Montgomery), who described the Senate leadership's dramatic concession as "very logical."
"As bad as the deal is, we're in very bad trouble," Levitan said.
Levitan was one of the overwhelming majority of more than 40 senators who had staunchly supported Steinberg since Wednesday, when the Senate president scuttled the Chase transaction because of questions Steinberg and others had about the deal.
Steinberg's reversal stunned several of his loyalists in the Senate, as word of it spread through the ornate Senate chamber and nearby lounge.
"I'm just disgusted," declared Sen. Thomas L. Bromwell (D-Baltimore).
In his midnight meeting with Steinberg and nearly a dozen other senators and state officials, Hughes pledged that he would sign neither a House of Delegates bill nor similar Senate legislation on the Chase deal until he attempts to extract concessions from Chase to reduce the state's cost in the transaction, according to several who attended the meeting.
State Sen. Thomas V. Mike Miller Jr. (D-Prince George's) said Hughes told the group that he was "desperate" to see the legislature approve the Chase transaction. Hughes, who chain-smoked through the meeting while seated behind his desk, said that while the transaction contained some "repugnant" elements, it was a "last chance" for Maryland to reduce a major liability in the ongoing thrift industry crisis, Miller said.
At 2 a.m. today, Senate leaders were still trying to round up members to approve enabling legislation, but several senators had already gone home.
In his speech to the Senate Saturday night, Steinberg reaffirmed his agreement with his colleagues who have balked at paying Chase $25 million for taking over Merritt. "The day a state government has to kneel and bend with a take-it-or-leave-it attitude from a multibillion-dollar corporation, the members of that body don't deserve to serve," he said.
The Senate president negotiated throughout the day Saturday with Chase, representatives of the two other thrifts, the Hughes administration and the House of Delegates.
Steinberg had won concessions from representatives of Friendship Savings and Loan of Bethesda and Chesapeake Savings and Loan of Annapolis, getting them to agree to accept less from Chase than the bank had originally offered. Although Steinberg thought he could then extract better terms from Chase, the bank was adamant about the state paying the full $25 million, an amount that the bank says is necessary to help cover possible losses at Merritt.
At that point, key members of the Senate leadership said their president was ready to accept defeat. But his resolve renewed, Steinberg told the Senate during his speech about 9 p.m. that because of continued "very uncomfortable feelings in my stomach about the Chase deal I feel more than ever it would be best to maintain our position."
During his speech Saturday night, the Senate president continued to hammer the Hughes administration for not disclosing information that the Senate feels is critical to the transaction, including new disclosures Saturday about alleged insider dealing and other possible wrongdoing by Merritt's owner.
"Every day since we came into session, something new comes forth," said Steinberg, "repugnant, offensive things that are contrary to the principles of the Maryland Senate."
In an address to the delegates shortly after 11 p.m., House Speaker Benjamin L. Cardin (D-Baltimore) praised them for their support of the Chase deal.
"We may not get the headlines but we've done the right thing," said Cardin, who earlier had met with Hughes and Steinberg. The House responded with a standing ovation.
On the criminal investigation, a state official who asked not to be identified said the probe would be similar to one under way since May into the operations of Old Court Savings and Loan Association, where management problems and allegations of wrongdoing triggered a broad thrift industry crisis. A federal grand jury has been hearing testimony on the Old Court probe since early September.
The investigation into Merritt is expected to center on the same types of allegations raised last month by the attorney for the conservator of the thrift, which has been under state control since May.
In a letter to several senior Hughes administration officials, the attorney, Robert J. Thieblot, alleged that Klein engaged in "self-dealing," collected unreasonable fees, forced Merritt to violate numerous state and industry regulations and directed the thrift to engage in speculative ventures that jeopardized the financial health of the association.
Thieblot also charged that Klein "insisted that Merritt approve solicitation of jumbo $100,000 certificates of deposit in excess of a reasonable percentage of its total deposits , over the objections of other directors." Jumbo certificates bought by large investors tend to be a less stable source of deposits because large investors frequently move their money in search of the highest interest rates.
Thieblot alleged that Merritt suffered "severe liquidity problems" when those certificates matured, "requiring it to engage in increasingly questionable practices to generate additional funds."
That allegation could be critical to a criminal probe because many observers believe that prosecutors investigating the operations of state thrifts, which advertise for their jumbo accounts, have a better chance of bringing indictments under federal mail and wire fraud statutes than under state laws. The federal wire and mail fraud statutes make it illegal to defraud the public using the federal mail system or interstate telephone systems.
Thieblot's letter, revealed in Saturday's Washington Post, infuriated many lawmakers.
"How much more information like this is there around?" asked Sen. Francis X. Kelly (D-Baltimore County). "I've never known Harry Hughes not to be forthright and honest. It bothers me this information was withheld -- that's not his style."