Lloyds to Sell 88 California Banks : Japanese-Owned Golden State Sanwa to Pay $263 Million
London-based Lloyds Bank has agreed to sell its California subsidiary, Lloyds Bank California, to Japanese-owned Golden State Sanwa Bank for $263 million in cash.
Under terms of the deal, Lloyds Bank California, with 88 branches and $3 billion in assets, will be folded into the smaller Golden State Sanwa, creating the state’s eighth-largest bank.
Lloyds thus becomes the second major British bank to bail out of the California retail banking market in a week. On Feb. 7, Midland Bank said it would sell its Crocker National Corp. unit to Wells Fargo & Co. for $1.08 billion in cash and securities.
The Lloyds-Golden State Sanwa transaction requires approval of the shareholders of both parent firms and of regulatory authorities in the United States, Britain and Japan. Golden State Sanwa officials said they hope to close the sale by the end of September. No decision has been made on what name the merged operation will be given.
Golden State Sanwa was established in 1972 as a subsidiary of Sanwa Bank, of Osaka, Japan, that nation’s fifth-largest bank and the eighth-largest in the world. It has grown through subsequent acquisitions of small California banks.
Today, Golden State Sanwa is California’s 13th-biggest bank, while Lloyds Bank California ranks ninth.
“The merger will enable Golden State Sanwa Bank to expand and strengthen the bank’s office network throughout California,” said Yukihiro Fujiwara, the bank’s president and chief executive. “The merger also is consistent with the international strategy of Sanwa Bank Ltd. to establish a retail banking network throughout the Pacific Rim.”
Lloyds is withdrawing from California with a disappointing but not disastrous record. It is recovering substantially more than its estimated $155-million investment, and the California unit is being sold for 1.4 times the book value of $181 million. The average for all bank sales last year was 1.9 times book value (assets minus liabilities), but Midland sold Crocker for roughly book value.
Lloyds Bank California’s earnings have been weak since 1980, when they fell dramatically because of soaring expenses, bank officials said. Now, Lloyds executives say, they have decided they can put the resources to better use elsewhere.
“There’s no element of distress in this at all,” F. W. Crawley, deputy chief executive of the parent Lloyds Bank, said in a telephone interview, contrasting this deal to Midland’s sale of Crocker.
Strategic Move
“The reasons for disposing of it are strategic. The mainstay of our business in the United States is corporate and wholesale. We’re very anxious to concentrate our business operations where they can have the most impact,” Crawley said.
He noted that Lloyds Bank California’s share of the extremely competitive California banking market is less than 2%.
Lloyds will keep about $200 million of its U.S. unit’s foreign loans, of which $150 million are to developing countries, primarily in Latin America. The rest are in loans to banks and public borrowers in Europe and Japan.
Lloyds will continue to have a substantial presence in the United States through 20 representative offices serving the U.S. and U.K. corporate markets, Crawley noted.
The British withdrawal from California can be traced to two converging factors, according to bankers and analysts here. The falling value of the dollar makes dollar-denominated investments less attractive. At the same time, imminent deregulation of Britain’s financial markets is forcing bank executives there to reconsider how they want to deploy their resources.
“If the English banks had an asset that was earning at a great rate so it would compensate for depreciation in currency exchange, it would be in their interest to hold on,” said Len Weil, president of Mitsui Manufacturers Bank, the Los Angeles-based subsidiary of Mitsui Bank of Japan.
“Since the reverse is true, obviously the intelligent thing to do is get the money out of the dollar.”
Two other United Kingdom banks, however, seem satisfied with their forays into California banking and appear determined to stay. Barclays, Britain’s biggest bank, this week bought the assets of Orange County’s failed Valencia Bank, while Standard Chartered Bank, Britain’s fifth-largest, is seeing improved results at its Los Angeles-based Union Bank subsidiary.
Union Bank last month reported 1985 net income of $47.1 million, a 6% improvement over 1984’s performance.
The Japanese, on the other hand, are positioning themselves for the long term, Weil said. Immediate earnings are less of a concern than an ability to serve the growing number of Japanese firms opening offices in California and elsewhere in the United States.
“How well they do here is not the overwhelming factor. It’s how they can best take care of their Japanese customers,” he said.
