Pacific Inland Bank of Anaheim has backed out of its previously announced agreement to purchase financially troubled Valencia Bank's $30-million trust department.
Officials of the two banks did not return numerous telephone inquiries Wednesday, but the state Banking Department disclosed in its weekly newsletter that Pacific Inland late last week withdrew its application to acquire the Valencia department. No explanation was given for the action. Just two months ago, Pacific Inland trumpeted its signing of the agreement with Santa Ana-based Valencia, saying the acquisition would boost the assets of its own trust business to $60 million.
Valencia Bank, under orders from the Federal Deposit Insurance Corp. to raise new capital to offset previous loan losses, has raised more than $10 million by selling its auto leasing division and several other assets that the bank has refused to identify. It apparently hoped to gain more capital and cut expenses by selling its trust department as well.
Impact Is Unclear
What impact Pacific Inland's decision will have on Valencia's financial situation is not clear.
Ken Slezak, senior vice president at Valencia, said last May when the trust division sale was first announced that it was "a step toward improving Valencia's profitability."
But he added that the sale would not have any significant effect on the bank's capital-to-asset ratio, which had fallen to 2.8% in March. The ratio is a number government regulators use as an indicator of financial health. Most community banks are expected to keep a capital-to-assets ratio of at least 6%.
The trust department, which invests and manages clients' money, had been the focus of concern since December 1983, when Valencia officials uncovered the misappropriation of more than $6 million of investors' pension and profit-sharing funds. The bank said the money was illegally invested in real estate deals by employees who have since left Valencia.
The bank wasn't trying to sell its trust department to get rid of the problem, however. The initial agreement with Pacific Inland called for Valencia to continue assuming the $6 million trust department liability.
Valencia and its disgruntled trust department investors last month moved to settle the longstanding dispute by naming former Superior Court Judge Bruce W. Sumner to recover and distribute the money owed the investors--an amount the bank says has risen to $7.6 million with accrued interest.
Sumner said Wednesday that Pacific Inland's decision would not affect the agreement between Valencia and the investors.
"That transaction is complete and we are proceeding in an orderly fashion to begin paying back the investors," Sumner said. Sumner added that $2 million already has been distributed to the 37 investors, most of whom are doctors.