State S&L department in death throes due to federal conversions.

State S&L department in death throes due to federal conversions

The State Department of Savings and Loan Associations is in its death throes.

"We are planning a skeleton crew of 10 people after July 1 unless the legislature takes immediate action to provide us with general funds," said Shirley Thayer, senior staff counsel at the department.

Such legislation seems unlikely, as the State Senate Committee on Finance and Insurance is currently considering a bill drafted by State Sen. Dan McCorquodale (D-San Jose) to require all state chartered S&Ls to convert to federal charter within one year. Such a bill would effectively shut down the state department.

The department has historically financed itself with assessments on state-chartered institutions, and at one time, even produced a surplus which went into the state's coffers, said Barry Rubens, CEO of California Research Corp., based in Santa Monica.

The department's finances have during the past few years become strained as thrifts go out of business or convert to federal charter.

Since 1986, the number of state-chartered S&Ls has decreased from 148 to approximately 108 as of Jan. 11. There are currently some 180 S&Ls in the state. The percentage of S&Ls with a state charter has also declined from when it exceeded two-thirds, Rubens noted.

Of the four largest remaining state-chartered thrifts, three are in trouble, including Santa Barbara Savings and Loan, Mercury Savings & Loan, based in Huntington Beach, and Imperial Savings Association, based in San Diego. Healthy, but state-chartered Coast Savings plans to convert to federal charter, Thayer indicated.

Besides having a smaller base of state-chartered S&Ls from which to charge fees, the department collects less revenues on average from the remaining S&Ls under its jurisdiction, as most of the larger S&Ls have left the state fold. Smaller S&Ls pay a flat fee of $20,000, Thayer said.

The department uses its revenues to fund examinations of S&Ls under its jurisdictions. "No one is out there doing examinations for the state anymore," said Richard Damm, consultant to McCorquodale.

Because the department can not afford to hire enough examiners, it has had to scrimp on its role as a monitor, Damm added.

The advantages that once came with a state charter were killed by the Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA), Rubens said. Those advantages included the ability to devote a greater portion of its assets to non-residential real estate loans and to a service corporation, he explained.

"All a state charter now does is add an additional level of expense because you also have to be in the federal system if you want insurance," Rubens said. He mentioned that one $50 million S&L will save $25,000 when in converts to federal charter.

FIRREA, with its more stringent capital requirements and other restrictions, will also bring about a decline in the total number of thrifts as financially weaker institutions are either liquidated or merged out of existence, Damm said.

Damm predicted that without the McCorquodale bill, the number of state-chartered S&Ls would shrink to less than 70 by the end of the year.

McCorquodale has also drafted a second proposed bill as an alternative which provides for the merger of the Department of Savings and Loan Associations with the Department of Banking.

Thayer said the department already planned to cut staff to 70 employees from 90 as of last fall. "Everyone in the department was put on the SROA list," Thayer said. SROA, which stands for state restriction of appointment, is triggered when state employees are laid off, and it gives those on the list priority in comparable jobs.

On Feb. 16 William J. Crawford, commissioner of the department, announced he would retire at the end of April when he turns 70. He recommended to Gov. George Deukmejian the appointment of his chief deputy, William D. Davis.

As things look now, Davis' first task would be his last: the dismantling of what is left of the department.