Capital briefs.

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Author: McConnell, BillBarancik, Scott

WASHINGTON -- Lawmakers were expected to pass a bill late Friday that would partly compensate lenders for a cut in interest rates on guaranteed student loans.

The legislation would be in effect from July 1 until Oct. 1. Under the plan, the rate students pay would drop 80-basis points, but lenders would receive a 50-basis point federal subsidy.

The measure was included in transportation legislation scheduled to be approved by both the House and Senate. The provisions are intended to ensure loans are available for the fall semester.

Bankers have complained that an interest rate cut scheduled to take effect July 1 under a 1993 law would make loans unprofitable and have threatened to flee the program. The Clinton administration opposes any plan to compensate lenders for the lost revenue.

Senate Majority Leader Trent Lott said lawmakers will take up a long-term solution to the interest rate dispute after Congress returns from Memorial Day recess on June 1.

WASHINGTON -- A major funeral services firm on Friday became the third commercial firm since the start of 1997 to receive a federal thrift charter.

Hillenbrand Industries Inc. of Batesville, Ind., plans to offer trust services nationwide through a new thrift, Forethought Federal Savings Bank.

The thrift will manage funds for people who pay for funerals in advance. The so-called "pre-need funeral trusts" will be marketed through independent funeral directors and are intended as an alternative to burial insurance. Hillenbrand offers funeral planning and is the world's largest coffin manufacturer.

Also last week, Metropolitan Life Insurance Co. asked regulators for permission to start up a federal thrift.

The institution would be named MetLife Bank and Trust Co. and be based in Easton, Pa. It would offer trust services to the parent company's insurance customers.

Metropolitan Life joined 20 other nonbanks seeking thrift charters, including 12 insurers. Ten nonbanks have been approved for thrift charters since the beginning of 1997, including Nationwide Insurance Enterprise, ReliaStar Financial Corp., Travelers Group, and Principal Mutual Insurance Co.

WASHINGTON -- Small and medium-size banks with significant year-2000 problems could soon see their credit ratings fall, Moody's Investors Service warned last week.

At particular risk are smaller banks that plan to escape their year-2000 problems by being acquired, the ratings agency found.

As early as this fall, Moody's expects banks to become less willing to buy banks infested with the so-called millennium bug, fearing they will not have enough time to fix the computer systems.

"Nineteen ninety-nine could be the year of the Big Chill for M&A activity in the industry," said Ryan O'Connell, senior vice president at Moody's and the report's author.

A bank that manages to find a last-minute buyer may have to accept a "painful discount" in the purchase price, the report said.

Small and medium-size banks planning to pay for their own fixes are also at risk of a ratings dip, the report said. Though large banks should easily absorb such costs, smaller institutions might see their profits clipped.

But Moody's will increase its focus on year-2000 during the next six months, though it has not yet downgraded any banks for millennium problems. "Going forward, that will be a topic of conversation with every bank that we rate," he said.

In evaluating a bank's year-2000 readiness, Moody's will look at such factors as "what they say, what they have done, how much they're spending, and how many people they have" on the project, Mr. O'Connell said.