NO THRIFT CHARTERS FOR FIDELITY AND CONSECO: FEDS BOUNCE APPLICATIONS FROM THEM AS `DEFICIENT’

In a sign that federal regulators are getting tougher, several investment companies trying to get into banking through the back door — including Fidelity Investments’ parent FMR Corp. and insurance giant Conseco Inc. — have had their applications for thrift charters tossed back to them.

Boston-based FMR, the largest U.S. mutual fund company, with $645 billion in assets, and Carmel, Ind.-based Conseco were among five applicants told in recent weeks by the federal Office of Thrift Supervision that their applications, filed late last year and early this year, were “deficient.”

“It’s more (rejections) than we’ve usually had at any one time,” confirms agency spokesman William Fulwider.

Regulators are concerned these new thrifts may not meet the requirements to serve low-income consumers that banks and other thrifts must follow. There also are fears of conflicts of interest, including scenarios where trust companies might wrongly invest in their parent’s mutual funds rather than in competitors’ offerings.

For companies like FMR or Conseco, being denied thrift charters could cost them opportunities to offer bank-like services — attracting billions in low-cost deposits — at a time when banks and thrifts are attempting to horn in on their core investment and insurance business.

Other companies that withdrew thrift applications which the regulator determined contained insufficient information were Memphis securities firm Morgan Keegan Inc.; United Financial Services Inc., a broker-dealer in Indianapolis, and Affinity Bank Holding Co. of Ventura, Calif.

All this is taking place as banks are battling on Capitol Hill to make sure any financial deregulation effort includes legislation that stops granting thrift charters to companies with commercial businesses. Banking industry advocates argue they now face tougher reserve requirements than thrifts do, as well as restrictions on non-bank commercial activities.

a rush to file

Financial services firms and other companies have rushed to file thrift applications over the last few months, fearing Congress may cut them off from receiving the valuable charters if financial deregulation is enacted soon.

Indeed, a bill introduced in early January by House Banking Committee Chairman Jim Leach, R-Iowa, would prohibit granting thrift charters to companies with commercial businesses if their applications were filed after Oct. 7, 1998, a date which may be moved forward.

About 60 thrift applications are pending, including 25 from insurance companies and seven from securities companies. Fidelity, whose parent also owns a commercial limousine service and a series of commercial lumber yards in New Jersey, filed its 500-page application Jan. 5.

“We had received information from OTS that they had wanted more information in our application before they would continue to process it,” says Jim Griffin, a spokesman for Fidelity.

“They were looking for some more information on the ownership of FMR Corp.” That is the only issue the thrift office raised with FMR, he said.

FMR is privately held, with the family of chairman and CEO Edward “Ned” Johnson III as major shareholder. The company plans to refile its application at an undetermined time, Mr. Griffin says.

Conseco spokesman Jim Rosensteele says the insurance and financial services company applied late last year for a federal thrift charter for the state-chartered credit card thrift it took over when it acquired Green Tree Financial Corp. so it could expand the types of loans it could offer.

Mr. Rosensteele says the thrift regulator asked $83 billion-asset Conseco for more information on its plan to meet requirements of the Community Reinvestment Act, under which companies must serve low- and moderate-income customers.

Conseco has since submitted a CRA plan, Mr. Rosensteele says, but he declines to reveal further information about it.

The Office of Thrift Supervision is clearly signaling it intends to carefully scrutinize any applications, including those for only trust services, to make sure they meet consumer-protection requirements as well as CRA regulations.

Companies applying only to provide trust services, as is the case with Fidelity, will “want to make sure there are appropriate safeguards here so they don’t have their investment adviser (to the trust fund) be invested in proprietary mutual funds owned by the other affiliate,” says an OTS official. “We do have several applications in the pipeline where these issues are raised.”

Meantime, the agency and other banking regulators are trying to reinterpret Community Redevelopment Act regulations to deal with new kinds of financial institutions that are not based in any particular geographic area.

The agency is suggesting that new applicants without defined geographic customer bases use a “strategic plan” option, under which companies and regulators hammer out goals that would have to be met to comply with CRA.

Last November, the office approved a thrift charter for State Farm Mutual Automobile Insurance Co. of Bloomington, Ill., under which State Farm committed to making $195 million in loans to low- and moderate-income borrowers in the three states that would be served by the thrift, using its network of insurance agents as distributors of the loans.

T. rowe made cra proposal

In 1997, OTS also signed off on a plan in which Travelers Corp. (before its merger into Citigroup) agreed to make $430 million in home equity loans to low- and moderate-income borrowers throughout the country.

While Fidelity had asked to be declared exempt from CRA, which usually is not applied to thrifts that operate only as trust companies, T. Rowe Price had proposed a community investment plan as part of an application it filed last October to sell certificates of deposit nationwide.

“We would look to the Maryland area as well as a national area (to meet CRA requirements),” says T. Rowe’s David Oestreicher, associate legal counsel for the Baltimore-based mutual fund company.

“We’re looking at giving grants to certain community organizations dealing with low- and moderate-income housing,” he explains, as well as making investments such as securities-backed loans on properties in low-or moderate-income areas.