San Diego and Bay Area Banks Plan Merger : Great American First Negotiating for United

Great American First Savings Bank said Tuesday that it is negotiating to buy United Bank, the San Francisco-based savings bank with losses of more than $8 million in the first half of 1985 and a net worth that is far below regulatory minimum.

It was the second time in the past three weeks that expansion-minded Great American, based in San Diego, has announced its intention to acquire an unprofitable bank.

The announcement increased industry speculation that regulators have “strongly suggested” that regulatory approval of Great American’s proposed merger with a successful Arizona S&L; may hinge on its buying one or more unprofitable institutions.

“There’s no directive, but it’s been strongly suggested,” said one regulatory source.

Last month, Great American agreed to merge with Los Angeles Federal Savings Bank, which has lost $10.7 million since 1981. That deal will triple Great American’s presence in Los Angeles to 21 offices.

Similarly, United Bank’s 17 Bay Area branches will give Great American visibility in an area where it now has none.

Awaiting Approval

Great American, with about $7.5 billion in assets and 122 branches statewide, is awaiting shareholder and regulatory approval to merge with Home Federal Savings & Loan of Arizona, a profitable company with nearly $2 billion in assets.

The proposed $102-million merger with Home Federal runs counter to a Federal Home Loan Bank Board policy that has typically prevented interstate mergers of healthy institutions. Generally, interstate mergers have been approved only when a healthy company will assume control over an unprofitable one.

But with an increasing number of financial institutions falling below minimum net worth requirements and with banks’ freedom under deregulation to conduct business across state lines, the bank board has been considering a policy change.

Regulators believe that, “unless they get something out of it to protect the insurance fund, then they won’t allow interstate mergers,” the regulatory source said.

With additions to reserves for bad loans, United Bank’s losses for the six months ended June 30 reached more than $8 million, with $7.5 million reported in the second quarter. Net worth totaled $7.8 million as of June 30, or 1.2% of its $640 million in assets.

United Bank, founded 11 years ago by Chinese-American businessman Ben L. Hom, bills itself as the nation’s largest minority-owned bank. In terms of assets, it was the 43rd largest among the state’s 200 savings institutions in 1984. During a five-day run in June, United Bank customers withdrew more than $20 million.