BankAmerica Corp. asked First Interstate Bancorp and other potential buyers Monday to back off and give the troubled San Francisco bank time to solve its own problems.
While not rejecting First Interstate’s $3.4-billion merger offer outright, BankAmerica said it is “aware of nothing that would justify a decision to merge the bank at this time.”
John R. Beckett, chairman of the BankAmerica board of directors’ executive committee, said the bank would undertake an “exhaustive assessment of the bank’s strategic plans and prospects” in search of means to restore the floundering giant to profitability and to benefit shareholders.
Time Needed for Review
A decision on First Interstate’s merger bid and on offers from others to raise capital for BankAmerica would be “inappropriate” before that review is completed, Beckett added.
“We, therefore, are asking First Interstate and others who have indicated an interest in discussing extraordinary transactions to withdraw their proposals and we do so as friendly responses to friendly proposals.”
BankAmerica flatly denied speculation that it is considering selling its Seafirst Corp. bank subsidiary in Washington state. The bank’s failure to mention its Charles Schwab & Co. discount brokerage unit fueled speculation that the brokerage firm would be sold.
First Interstate said Monday afternoon, “We are very disappointed by the BankAmerica decision.” The Los Angeles bank said it is “reviewing alternatives in response to the BankAmerica statement.”
A First Interstate official said the bank did not rule out the possibility of a hostile tender offer for BankAmerica.
BankAmerica left no doubt by the tone of its statement that it did not welcome First Interstate’s buy-out bid and would like First Interstate Chairman Joseph J. Pinola, an aggressive former BankAmerica executive, to go away.
“The First Interstate and other proposals create an unnecessary impediment to the bank’s progress, generating uncertainty in the marketplace, consuming an inordinate amount of senior management time and attention, and affecting the bank’s relations with its customers,” Beckett said.
His statement carried an implicit plea to BankAmerica’s long-suffering shareholders to give bank management one more chance to address the bank’s woes. BankAmerica eliminated the common stock dividend in January after the company reported $337 million in losses for 1985. The bank’s stock price fell to an all-time low of $9.50 a share just before First Interstate made its merger bid last month.
“I view this as simply a way to buy more time,” said banking industry analyst Donald K. Crowley of the San Francisco office of the investment house of Keefe, Bruyette & Woods. “It’s just another move in the chess game. This is a non-rejection rejection.”
BankAmerica could not, however, reject the First Interstate bid outright because of legal considerations. First Interstate says its offer is worth $22 a share, while BankAmerica stock is selling for $16 a share. If BankAmerica were to reject the offer out of hand, angry shareholders could file suit claiming that they had been deprived of the $6-a-share difference without a vote.
BankAmerica’s board of directors already faces 20 lawsuits from shareholders alleging that the board failed to represent their interests. The bank’s insurance against such suits was canceled last year and the company is insuring itself through a wholly owned Cayman Islands subsidiary.
‘Who Owns This Bank?’
A source close to First Interstate was outraged by BankAmerica’s response. “That board must feel it is impervious to lawsuits,” he said. “Who owns this bank, the shareholders or management?”
He added, “They are getting to the bottom of the barrel in terms of businesses they can sell.” With projected operating losses of about $100 million a quarter and no turnaround in sight, “Where do they raise capital?” he asked. “How can they grow? Can they really get out of this box by themselves?”
BankAmerica has lost nearly $1 billion over the past 18 months, suffered severe management turmoil and been forced to sell valuable assets to maintain its underlying capital at safe levels. The bank’s problems have left it vulnerable to unwanted takeover bids and “friendly” offers to raise capital.
Two investor groups led by prominent San Franciscans have come forward in recent weeks, offering to help BankAmerica raise as much as $1 billion to strengthen the bank and keep it independent.
In addition, several West German and Japanese banks are thought to have quietly offered to invest in the bank in exchange for a piece of future profits. New York’s Citicorp, too, has reportedly presented BankAmerica with an informal proposal to buy major pieces of the troubled company.
Legal impediments to a complete merger of Citicorp and BankAmerica are virtually insurmountable today, but Citicorp is said to be exploring ways to acquire a substantial piece of BankAmerica’s envied California retail banking franchise, perhaps through Citicorp’s California savings bank.
First Interstate made its first formal takeover bid a month ago. Three days later, BankAmerica removed President Samuel H. Armacost and brought back former chief executive A.W. Clausen to try to lead the bank out of its quagmire. First Interstate raised the value of its offer by $600 million last week.
“We are well aware of the challenges faced by the new management team in restoring BankAmerica to its former profitability,” Beckett said in the BankAmerica statement. “We also are well aware of the great value of its various business segments, including the California banking franchise it holds.”
Beckett and Clausen indicated in the bank’s statement that the bank would accelerate its program of selling assets that are not considered essential to the bank’s future. The company has sold and leased back its San Francisco and Los Angeles headquarters buildings. It has sold a consumer finance arm, a leasing subsidiary and spun off more than a dozen other units and lines of business large and small.
Assets at the company, the nation’s second-largest banking firm after Citicorp, have fallen by more than $10 billion in the past three years.
However, Clausen on Monday ruled out the sale of BankAmerica’s Seafirst banking unit in Washington, which has inspired expressions of interest from several would-be buyers. “Contrary to speculation,” Clausen said, “Seafirst Corp. is part of our core business strategy and it is not for sale.”
Charles R. Schwab, president of the discount brokerage, has been informed by BankAmerica officials that the unit’s status is being reviewed, said Hugo W. Quackenbush, senior vice president for marketing at Schwab. “We may or may not be considered core,” he added.
Sources said Schwab has been trying to line up financing to buy back his company since he abruptly resigned from BankAmerica’s board this summer.
“He has talked to a lot of people about this,” said one source, including leveraged buy-out specialists Kohlberg, Kravis & Roberts.
Schwab wants to free the brokerage firm from banking industry regulation so that it can offer investment advice and other financial products to its customers.