Big California S&L chain shuns the new NOWs

The head of one of the nation's biggest savings-and-loan holding companies believes the soon-to-be national NOW (negotiated order of withdrawal) accounts -- interest-bearing checking -- are a step backward. And he his organization won't have anything to do with them.

Edward L. Jonhson, chairman and chief executive officer of Financial Federation Inc., a Los Angeles-based holding company with $2.4 billion in assets , says he does not consider NOW accounts a needed service in the 11 S&Ls in his corporate family.

This brands Mr. Johnson as a maverick in the highly competitive California S&L industry, in which just about every other S&L -- and bank -- is getting ready for a fierce NOW- account battle for depositors' dollars.

A new federal law allows both banks and savings-and-loan associations in the United States to offer NOW accounts starting Dec. 31, though many banks won't open them until JaN. 1. Checks can be written on NOW accounts while the balance earns 5.25 percent interest.

"Eight out of 10 California households already have a checking account," Mr. Johnson insists. "Banks have traditionally handled 100 percent of the checking account business for years; will offer the same 5.25 percent interest as savings and loan associations; and with their established experience it is doubtful many bank customers will change their present checking account status.

"Now the other 20 percent of the people, we assume, don't need a checking account -- or they'd already have one." Besides, he adds, "we could not determine we could make money on the [NOW] program."

In fact, competition will be intense in California. Savings- and-loan associations, in efforts to woo customers from banks, are clipping costs linked to NOW accounts. Bankers term some of these cuts "unrealistic."

Pacific Federal Savings & Loan Association, of Los Angeles, is at the low end , featuring no service charges with a minimum balance in a NOW account of only $ 100. But that also means canceled checks are not returned to the account holder. With a $500 minimum, however, processed checks accompany the monthly statement.

At the other end of the price range is the San Francisco- based Bank of America. It will not nick a customer with NOW-account charges when a minimum daily balance of $2,000 is maintained during the statement period, or an average daily balance of $4,000. Otherwise, it's $3, a month, plus 15 cents for each check paid.

Getting NOW accounts off and running requires a substantial amount of personnel training for S&Ls to handle credit ratings and other new factors stemming from establishment of checking accounts, Mr. Johnson points out. These and other overhead costs of NOW accounts will represent additional charges against income of S&Ls, and "this could have a negative impact on profitability, " he warns.

"It's a little strange to be shouting about checks in the plastic age," the S&L official maintains. "Ultimately the automatic transfer of funds with the use of a card -- or bill paying by telephone linked to a computer -- will prevail. These things are aimed at eliminating paper work."

Financial Federation's S&Ls offer an alternative to NOW accounts, though. Customers with a $500 minimum balance can obtain in person or by mail all the money orders needed at no cost, and without service charges to pay bills, Mr. Johnson says. Furthermore, he explains, "our 'Bill Paying Our Way' accounts pay 5.5 percent, a quarter of a percentage point above NOW accounts." And. he says, with instant copies of money orders, customers don't have to fool around with balancing a checkbook.

"Our position is, if the NOW service was needed we would move into it," he concludes. "But we are primarily in the savings and mortgage business, and we want to emphasize that and concentrate our efforts in that direction."

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