Interstate Mergers Topic as Bankers Talk Shop in L.A.
A large group of Southern California bankers met the industry’s Goliaths late last week in a swap meet of sorts--one that could mark the start of a banking merger mania in California.
With their eyes on a pending bill to permit interstate banking, officers of banks in several foreign countries and from many of the nation’s banking giants--especially those from New York--gathered in Los Angeles on Thursday to talk with executives of 142 smaller California banks.
The topic was mergers and what must still be done to make them happen once Gov. George Deukmejian signs the measure, as expected.
The small banks present, eager to learn how to make themselves attractive, came primarily from Los Angeles, Orange and San Diego counties. Attending as potential buyers were representatives of 40 large domestic and foreign banks from New York to California and from Sweden, Brazil and West Germany to the Middle East.
Lucrative Deposit Base
“I’ve never seen anything like it,” one banker said of the gathering of 240 bankers and attorneys at the Airport Hilton Hotel in Los Angeles.
Under the interstate banking legislation, California’s lucrative deposit base would open next July to banks in 11 Western and Southwestern states, as long as they would give California’s banks reciprocal operating rights. The measure also would allow banks in any other state with reciprocal banking laws to move into the California market in 1991.
But the legislation also opens a back door that could allow major New York banks to enter the California market next year, said Edward Carpenter, a Newport Beach financial institutions consultant.
He explained that bank holding companies such as Citicorp and Chase Manhattan Corp.--both represented at Thursday’s meeting--have deals pending to buy Arizona banks when that state’s interstate banking law becomes effective on Oct. 1. The companies then could use their newly acquired Arizona banks to buy California banks, he added.
The scent of the money potentially to be made gave a sense of urgency to the conference.
“Everybody is sitting on the edge of their chairs, expecting an enormous amount of sales,” said Michael S. Burd, first vice president and senior officer at E. F. Hutton & Co., a New York brokerage and investment banking firm.
California banks must decide soon whether to sell or to fight the expected onslaught of mergers and acquisitions, he said.
‘Feeding Frenzy’
And even those planning to fight takeover attempts, Burd added, still may have to merge or form some sort of cooperative network to survive in a climate of greater competition.
Normally tight-lipped about mergers and acquisitions, many bankers had loosened up by the end of the daylong session and openly talked about the possibility of selling out. Even the speakers got into the act.
“I thought most people here just wanted our phone number so they could call us,” quipped Gregory J. Bjorndahl, a senior vice president at Security Pacific National Bank in Los Angeles.
Banking lawyer Ronald W. Bachli of San Francisco told the audience that he figured there would be a “feeding frenzy” by the day’s end as potential buyers and sellers met over hors d’oeuvres.
Individual Discussions
In the hallway outside the hotel meeting room, two executives at Union Bank in Los Angeles talked individually with the chairmen, presidents or controlling stockholders of a number of small California banks.
Earlier this year, Union Bank set up a bank brokerage operation to take advantage of its role as the big bank with which most smaller banks deal daily.
“Look at all these,” said Hal Harley, an assistant vice president at Union, pulling a bulging handful of business cards from his coat pocket.
But for some, Thursday’s session was only an appetizer. Potential buyers and sellers met again Friday in private meetings to exchange information, said John Todd, a partner in the Orange County office of Deloitte, Haskins & Sells, the accounting firm that sponsored the conference.
Some bankers bemoaned the fact that there were so many speakers on Thursday. They wanted more informal discussions with each other.
Gary M. Wrigley, for instance, wanted to test the waters for a three-way merger to create the largest and, more importantly, the dominant independent bank in Orange County. But Wrigley, president and chief executive of Corporate National Bank in Santa Ana, conceded that ego was the biggest obstacle to creating a $300-million to $500-million bank from three equally healthy institutions.
“Who would be chairman and who would be president and chief executive officer? Those are the biggest stumbling blocks,” he said.
In one, long-ago attempt at such a merger, said James Gray, chairman of Harbor Bank in Long Beach, “I told the other people right away that I would be anything from chairman to a passive investor. That got the issue on the table real fast.”
The deal never materialized, partly because of other egos, he said.
Peter J. Wirth, a vice president with the investment banking firm of Keefe, Bruyette & Woods Inc., noted that smaller banks--those with $50 million to $200 million in assets--must start thinking about merging.
He explained that major banks that will pay top dollar for acquisitions may only look at institutions with more than $1 billion in assets and a good position in the market. And “only five significant takeover targets” fit that description in California, he said.
California’s interstate banking bill is actually two bills. It also allows out-of-state banks and other companies to launch new banks. But it’s doubtful that the big companies will want to take the time to build up a share of the market if they can grab a share through acquisitions, said Francis J. Partel Jr., a senior vice president at Chase Manhattan Bank.
Still, a small Canadian bank plans to seek approval soon to start a new bank in California.
Edward G. Robinson, chairman of Sunland Capital Corp. in Calgary, Alberta, said his group wants to set up shop in the Palm Springs area.
“There are a lot of Canadians in (nearby) Rancho Mirage,” he explained.
