Security Pacific Is Given OK to Buy Arizona Bank--but There’s a Catch
The final federal approval for Security Pacific Corp. to acquire Arizona Bancwest Corp. in Phoenix has come with a slight hitch: Security Pacific’s subsidiary state-chartered bank in Irvine and its Arizona acquisition must halt their direct investments in real estate developments.
But that one condition, which the parent company of Security Pacific National Bank said it will abide by, may become academic if the Federal Reserve Board adopts new rules for bank holding companies to ease current restrictions.
The Fed gave its final conditional approval on Friday for Security Pacific to purchase the parent company of Arizona Bank for $45 a share, or about $480 million. The acquisition has been pending since August, 1985.
Bancwest, with $4.1 billion in assets, owns Arizona’s third-largest bank and is one of five banks or bank holding companies to be purchased by out-of-state companies under Arizona’s new interstate banking law.
The law goes into effect Oct. 1, so the transaction can not be completed until then. The state superintendent of banking also cannot approve any deals until then, said Russell A. Freeman, executive vice president and general counsel for Security Pacific Corp. and the bank.
Both California and Arizona have liberal state laws that allow state-chartered banks to join with developers in partnerships to own, develop and sell real estate projects. National banks under federal charters are prohibited from engaging in such partnerships.
Under state law, a bank typically can finance the land purchase and development costs, and a developer as a joint venture partner can put up the structures. The two partners usually split the profits.
The Fed has been concerned that laws allowing such investments could put state banks in unsafe and unsound conditions, Freeman said, yet the regulator’s own rules allow national banks to assume the entire risk of such direct investments.
He said the Fed had asked more than a year ago for industry comments on changing the bank holding company law. He said the Fed indicated to Security Pacific that it may soon act on those comments to change the direct investment rule and allow some limited joint real estate ventures.
Such a change would render moot the Fed’s condition for the Security Pacific-Bancwest deal. Even if the Fed keeps the rule, Security Pacific is prepared to wind up its direct real estate investment--and that of its Arizona operation--within the two-year period required by the Fed.
The Irvine subsidiary, called Security Pacific State Bank, was created two years ago under state law when the company purchased assets and assumed obligations of the failed Bank of Irvine, which had $29 million in assets.
Freeman and Duane Rickard, the state bank’s president, said Security Pacific took over the failed bank to take advantage of the more liberal state rules.
The state bank, for instance, has four subsidiaries that engage in such services as management consulting, auditing, computer consulting and real estate consulting for automobile sales centers. None of those subsidiaries would be allowed to operate under federal charter, Rickard said, but will be allowed to continue at the state-chartered subsidiaries under the conditional approval.
The state bank, Rickard said, had $105.6 million in assets at the end of August and about $9 million in direct real estate investments, barely a speck contrasted with Security Pacific Corp.’s $53.6 billion in assets at the end of June.
