Thrift Issues Rise on Hopes of Tax Break : Banking: Investors take interest in pending budget provision to end pre-1988 liability for institutions.

Thrift industry stock prices, including those of such California giants as H.F. Ahmanson & Co. and Great Western Financial Corp., were up sharply Monday on investor hopes that savings and loans would benefit from a little-noticed tax change in the budget package now before Congress.

The provision would eliminate about $4 billion of pre-1988 tax liability that might otherwise be triggered by thrift institutions converting to bank charters, as sometimes happens when savings and loans merge with banks.

Analysts doubted the measure would spur a wave of thrift takeovers by banks but said it does remove one obstacle to such deals.

The liability arises from a tax break granted the industry years ago to encourage mortgage writing. When thrifts abandon their charters, the government “recaptures” the unpaid taxes.

Those amounts can be huge--an estimated $250 million each in pre-1988 liability for the nation’s two largest thrifts, H.F. Ahmanson & Co., parent of Home Savings of America, and Great Western Financial Corp., parent of Great Western Bank.

While the legislation erases pre-1988 tax liability, it also eliminates the tax break going forward and requires thrifts to pay post-1988 “recapture” taxes--a total of about $1.5 billion over seven years.

America’s Community Bankers, a thrift industry group, contends that the government is a net winner, since it would never have collected much of that $4 billion in pre-1988 liability anyway. A thrift facing a large recapture payout would either use asset sales to generate offsetting tax losses or not change its charter at all.

In trading Monday on the New York Stock Exchange, Ahmanson gained $1.25 to close at $27.75; Great Western was up $1.50 to close at $25.875; Golden West Financial, parent of World Savings & Loan, was up 87.5 cents to close at $52.125, and Glendale Federal Bank was up 62.5 cents to close at $16.375.