Converting Savings and Loan Associations From Mutual to Stock Ownership--A National Policy Needed

GGD-79-78: Published: Oct 1, 1979. Publicly Released: Oct 17, 1979.

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A review of the conversions of federally chartered savings and loan associations from mutual to stock ownership included the effects of actual conversion, the effectiveness of conversion regulations, an evaluation of appraisal methodology and process, and an analysis of conversion alternatives. In 1974 Congress enacted a law to study the problems of conversion which contained a provision to allow up to 49 savings and loan associations to convert to stock ownership.

The conversion of these savings and loan associations from mutual to stock ownership requires establishing a national policy. Although the Federal Home Loan Bank Board (FHLBB) has made great strides to ensure that conversion will be equitable to both management and depositors, it could make further strides by revising some of its regulations and better reviewing stock appraisals. Since the moratorium allowing savings and loan associations to convert to stock ownership and retain their Federal charters has expired, the right of 15 federally-chartered savings and loan associations to do business is in doubt. GAO believes that alternatives to conversion are available for improving an association's equity position, and that depositors have little knowledge of or interest in conversion.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: Congress should establish a national policy on the conversion issue and clarify the legal status of associations which have converted after June 30, 1976, and retained their Federal charters.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Chairman of the Federal Home Loan Bank Board should revise the conversion regulations as follows: delete waiving penalties on early withdrawals of certificates of deposit, and reduce the supplemental eligible account holders' maximum allowable stock purchases from 5 percent to 2 percent of the subscription offering. With regard to stock appraisals, the Chairman of the Federal Hone Loan Bank Board should: require appraisers to substantiate and/or document their reasons for selecting savings and loan associations comparables, applying discounts or premiums to an association's estimated price/earnings ratio, and any other subjective judgment; and review the adequacy of these judgments before final acceptance of an association valuation. In addition, to assist the Congress in establishing a national policy on conversions, the Chairman should provide the Congress with its new definition of association net worth requirements.

    Agency Affected:

 

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