ICA Considering Marriage With a Strong Partner

Under pressure to increase its capital, Imperial Corp. of America is considering a merger with a stronger institution, Chairman Kenneth Thygerson told shareholders during the savings and loan’s annual meeting Thursday in San Diego.

Thygerson also revealed that preliminary discussions during the past year have failed to generate any substantive offers.

ICA, which has been ordered to bolster its capital base by the Federal Home Loan Bank Board, is considering a merger because “the public markets today are simply not providing equity capital or . . . debt capital to the thrift industry,” Thygerson said.

Under an agreement with the regulators, ICA created $109 million in reserves during the fourth quarter of 1988 and the first quarter this year to offset anticipated losses in its car, mobile home and real estate portfolios. The reserves contributed to Imperial’s fourth-quarter loss of $15.6 million and a slender first-quarter profit of $900,000.

In addition to capital requirements included in the agreement with regulators, ICA probably will need more capital to alleviate a crunch Thygerson and other S&L; industry executives expect to occur when federal legislators complete a complicated bailout of the financially ailing Federal Savings & Loan Insurance Corp., which insures S&L; deposits.

Bolster Capital

That expected bailout is likely to include new, risk-based capital standards for S&Ls; that will be driven by the credit risks associated with different assets. Imperial, which has entered many riskier and non-traditional businesses, probably would have to bolster its capital to meet the new requirements, Thygerson said.

Thygerson and industry analysts have predicted that regulators will urge capital-short institutions to address the capital shortfall by merging with stronger institutions. But ICA’s non-traditional S&L; businesses could make it difficult for ICA to find a suitable merger partner, according to industry analysts.

A merger “is conceivable (if ICA finds) someone who’s active in the businesses it’s in,” according to David Hochstim, a New York-based industry analyst with Bear, Stearns. “But it seems to me that most of the big California companies would not be a good match.”

“At this juncture, ICA’s in something of a bind,” according to Allen G. Bortel, a San Francisco-based analyst with Shearson Lehman Hutton. “The feds are calling for everyone in the S&L; industry to make more capital available. They are also calling for (more capital from) those whose capital is thin and those who are in non-traditional (S&L;) businesses. And unfortunately, ICA is in both of those categories.

“A merger is one route to solve that problem. An investment by a deep-pocket investor is another option,” Bortel said.

In fact, ICA’s board is open to an investor who is willing to “take a major stake in the company,” Thygerson said.

Can Meet Minimums

Although ICA has agreed to bolster its capital base, the institution has ample capital to meet regulatory minimums, Thygerson said. ICA’s regulatory capital total of $428.5 million on Dec. 31 surpassed its Federal Home Loan Bank Board requirement by $80.2 million.

ICA in January took two immediate steps to bolster its capital position: it withheld dividend payments to build capital through retained earnings and it agreed with a federal bank board demand that it halt asset growth.

“We will not be paying dividends to shareholders,” Thygerson repeated on Thursday. “With respect to growth, we’ve in effect gone into an agreement with the (bank board) that we won’t grow.”

Because of the “poor performance” of its car and mobile home loans, ICA has “changed our strategy” and is disposing of those businesses, Thygerson said. ICA hopes to improve the profitability of its remaining businesses through “added and improved controls.” The company also will hire a chief credit officer.

ICA was “very disappointed with 1988, coming off two great years in ’87 and ‘86,” Thygerson told shareholders. “We reported earnings of $14.9 million . . . but core earnings (net interest and fee income minus operating costs) were $35 million, after-tax.”

Despite the poor year in 1988, the core earnings give ICA “a very solid base from which to move forward,” Thygerson said.