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George Sutton, Utah's commissioner of financial institutions, fired his volley Friday in the war over the fate of Home Savings Bank.

The federal Office of Thrift Supervision opened legal fire on Sutton two weeks ago with a federal lawsuit accusing Sutton of hampering the government's regulatory process when he converted Home Savings into a commercial bank.In a reply filed in U.S. District Court late Friday, Sutton denied that his conversion of Home Savings interfered with the federal government's regulation of savings associations.

He argued that he was not required to get OTS approval before converting the thrift into a commercial bank. OTS is the federal agency that regulates the nation's thrifts. Sutton argued that his conversion of Home Savings into a commercial bank removed Home Savings - now named Home Mortgage - from the control of OTS.

Sutton converted Home Savings Bank into a commercial bank in late June, after OTS declared the thrift unsound. OTS announced on May 18 that it planned to put the thrift into receivership.

OTS responded to the conversion of Home Savings by seizing control of it on July 5. The next day, OTS filed suit against Sutton, accusing him of interfering with OTS's regulatory responsibilities.

Two sharply differing views of Home Savings' viability lie at the heart of the legal battle. Home Savings was a Utah-chartered, stockholder-owned savings association whose accounts were insured by the Federal Deposit Insurance Corp.

But federal examiners determined that Home Savings had suffered "a pattern of consistent losses" and was $505,000 short in "tangible capital" requirements. Hence, they labeled it unsound and found a receiver for the thrift.

Sutton disagreed with that assessment. "This institution does not have to fail, but it will fail if OTS gets its hands on it," he said in a July 6 interview.

Home Savings owners created a plan to revive the thrift, intending to infuse it with $1 million in new cash, he explained. OTS's inflexibility prevented the owners from implementing the plan. "The only way to resolve it was to escape the jurisdiction of that agency."

In Friday's reply, Sutton claims his conversion of Home Savings into a commercial bank was within his statutory and administrative authority.

When OTS announced its plans to put Home Savings into receivership, it asked Sutton to consent to those plans. In Friday's reply, Sutton claims such consent would have required him to violate Utah law, particularly the state statute requiring him to protect the interests of Utah institutions, depositors, creditors and shareholders.