Five county mutual S&Ls meet new capital rules; feeling mutual, however, happens less often at S&Ls.

Five county mutual S&Ls meet new capital rules

Feeling mutual, however, happens less often at S&Ls

When Century Federal S&L converts from mutual ownership to stock, there will be only four mutual savings associations left in Los Angeles County.

The few surviving mutual S&Ls seem to be financially resilient, however.

All five of the mutuals in the county have met the new capital requirements imposed under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), despite their having no access to capital markets.

That limitation has also not prevented some of them from becoming fairly formidable players. Woodland Hills-based Republic Federal is the largest, with assets of more than $2 billion, ranked 13th in size among Los Angeles County S&Ls. Below Republic are Pomona First Federal Savings and Loan, with assets of roughly $1.3 billion; and Century Federal, Pasadena, $1.1 billion in assets. Two other mutuals, Quaker City Federal S&L, Whittier, and First Federal S&L of Pasadena, are smaller institutions.

Regardless of size, mutuals cannot fund expansion by the issuance of stocks or bonds the way stock corporations can. Consequently, most mutuals have converted to stock ownership in the past, including First Federal Savings Bank of California, based in Santa Monica, today one of the most successful medium-sized thrifts.

The ability to tap capital markets continues to be a lure for surviving mutuals to convert. Century Federal is the latest mutual to file an application to become a stock S&L. Century CEO Buzz Witt said his company is seeking the flexibility and room to grow that comes with greater availability of capital. Century is awaiting approval of its application, filed this spring, from the Securities and Exchange Commission and the Office of Thrift Supervision. Witt expects approval later this year or early 1991.

A mutual is owned by its depositors, who are entitled to vote and receive dividends. At one time it was a common form of organization in the Southland, although never as common in California as other parts of the country, said Dean Cannon, president of the California League of Savings Institutions. At one time the Federal Savings and Loan Insurance Corp. only insured mutuals. When FSLIC began to insure other S&Ls, the mutual configuration became less attractive.

Its big remaining advantage, according to Witt, is the ability to manage on a long-term basis, without pressure to appease impatient stockholders with their eyes fixed on the latest quarterly results. While depositors, in theory, are in a similar position to stockholders, in practice they do not have as strong an interest in the prospects of the company, Witt added.

The long-term view may help explain how the surviving mutuals have fared well even without as ready a supply of capital. Avoiding exotic and new lines of businesses, "We have tended to be more conservative," said Barry Anderson, CEO at First Federal.

It is also easier for mutuals to plow back all their retained earnings into the business, Anderson said. This built-in source in funds helps partly offset being precluded from raising money in the capital markets.

Another reason mutuals may think twice before converting is the possibility management may lose control of the institution, Anderson said. If a mutual converts, its managers and board members as a group are restricted to 9.9 percent of the stock of the corporation for three years. While they may have no ownership when the company is a mutual, control of the proxy process usually translates into effective mastery of the institution, Anderson suggested. The proxy process in a stock corporation may not necessarily be as neat and simple, with the potential for someone outside the management group to pick up a substantial chunk of the company's stock. That creates the danger of a takeover, Anderson said.

PHOTO : Cannon: Mutuals were never hot in California