Ryan Beck Move Into L.A. May Signal What’s Ahead for California : Investment Firms Look Toward Bank Merger Wave
The opening of a Los Angeles office by Ryan, Beck & Co., an East Coast investment bank specializing in small- to medium-sized financial institutions, is another sign of the increasing mergers and acquisitions activity among California banks.
The opening is scheduled to be announced at the company’s annual shareholders meeting today in West Orange, N.J. The office, which will be in Westwood, will be called Ryan, Beck & Co./Pacific.
“We have a lot of clients looking for the next area of opportunity, and we think it will be in California,” said Michael J. Conover, a Ryan Beck executive who will become president of the subsidiary.
Ryan Beck’s effort to tap those opportunities will face competition from established California operations, such as Sutro & Co., the state’s oldest investment bank; the San Francisco office of Keefe, Bruyette & Woods, a New York-based investment house specializing in banks, and smaller operations, such as San Francisco’s Hoefer & Arnett and Bateman Eichler, Hill Richards in Los Angeles.
In addition to providing M&A; advice to independent banks, Ryan Beck has an extensive clientele of individual investors who buy bank stocks, and it makes markets in the stocks of 60 California banks.
Stock prices for independent banks have increased an average of 18% in the past six months. Yet Conover said stock for many well-run banks in California with assets of $500 million or less remains below national averages and he expects increases in the coming months as the merger activity heats up, which makes them attractive to investors now.
Banking in California is in the early stages of what many industry observers believe will be a wave of consolidations and acquisitions in preparation for full interstate banking in 1991. Many independent banks are trying to position themselves to take advantage of the change in state law that will allow banks from outside the West to acquire California institutions.
Some bankers acknowledge that they would like to be acquired at the right price, and others want to be strong enough to resist takeovers and remain independent. For banks with assets under $500 million, either course is likely to involve growth, either by merging with another California bank or raising new capital through stock offerings so they can expand internally.
“There will be an increase in merger activity, but I’m not sure it will reach the tremendous levels some are expecting,” said Amir M. Habib, vice president of the corporate finance department at Sutro’s San Francisco headquarters.
Sutro has already handled some recent mergers. The firm served as investment banker for the Bank of Contra Costa in its recent sale to First Interstate Bank of California and represented Hibernia Bank in its recent acquisition by Security Pacific National Bank.
Those acquisitions were part of a pre-1991 strategy among the big California banks to secure shares of attractive markets before the competition opens with out-of-state rivals. The strategy was also behind Wells Fargo’s acquisition of Barclays Bank of California.
Donald K. Crowley, an analyst in Keefe Bruyette’s San Francisco office, said banks that want to stay independent will have to grow large enough to compete with big banks and keep their own costs down through the economies of scale available to bigger banks.
Positioning Themselves
“They also want to be large enough so somebody can’t just walk in and buy them for very little,” said Crowley, whose firm is currently assisting with a stock issue by General Bank, a Los Angeles institution with assets of about $300 million.
Other banks, Crowley said, are trying to position themselves to sell out at a premium price in the next few years. And he added: “A bank that stands still is very vulnerable, and they are all considering what is the appropriate avenue for them.”
A few bankers anticipate that the big New York banks will snap up California institutions in 1991, while more foresee acquisitions by the strong regional banks from the Midwest and Southeast, such as North Carolina’s NCNB, which acquired First RepublicBank in Texas last month.
Acquisition Costs Cited
There is disagreement, too, on what size banks will be most prized by outsiders. Habib said size will not be as important as quality of management and branch distribution. But Ryan Beck’s Conover expects the most sought-after targets to be banks with assets of around $1 billion.
“Anything under $1 billion falls off the map because the acquisition costs for lawyers and investment bankers and such are roughly the same for a $1-billion bank as for a $500-million one,” he said.
Only a handful of state banks are in the $1-billion range now, and two of them, Hibernia ($1.5 billion) and Barclays ($1.2 billion), were recently acquired. This is one reason that bankers and M&A; experts expect smaller banks to merge in an effort to reach that level as 1991 approaches.
BIGGEST CALIFORNIA BANK MERGERS
California bankers expect a wave of additional acquisitions and consolidations in preparation for full interstate banking in 1991.
Target (Adviser) Acquirer (Adviser) Value ’86 Crocker Wells Fargo $1.07 (Goldman Sachs) (Morgan Stanley) billion ’88 Union California First 750 (Goldman Sachs) ** million ’84 BanCal Tri-State Mitsubishi 282 (Salomon Bros.; Goldman Sachs) (First Boston) million ’86 Lloyds Bank Calif. Sanwa Bank Calif. 263 (Morgan Stanley) ** million ’88 Hibernia Bank* Security Pacific 160 (First Boston) ** million ’88 Barclays Wells Fargo 125 (Barclays) ** million
* Merger expected to be completed this month. ** Not available
Source: IDD Information Services
