In a sign of mergers to come, Michigan's third-largest banking firm Wednesday disclosed plans to buy a San Jose bank in 1991 when California lifts its restrictions on interstate banking.
The proposed purchase of Plaza Commerce Bancorp by Comerica Inc. of Detroit in a $114-million stock swap is believed to be the first acquisition of a California bank negotiated in anticipation of the change in the state's banking laws. Those laws will usher in full interstate banking in California, opening up the state to banks nationwide, including major institutions headquartered in New York and Chicago.
"We have been waiting to see who was going to make the move first. This is the first one out of the box," said Larry Kurmel, executive director of the California Bankers Assn., a San Francisco-based trade group.
The merger will not take effect until the rules limiting purchases of California banks are changed on Jan. 1, 1991. But it is significant, industry executives said, because it may well set off a round of similar moves as major out-of-state banks try to gain an early beachhead in the lucrative California market and banks in the state seek to expand before the merger restrictions are lifted on their out-of-state competitors.
"There is a limited supply of attractive banks that are well positioned," said Los Angeles attorney Harvey H. Rosen, who specializes in banking issues.
Under state law now, bank holding companies from the Midwest, South and East cannot buy a California bank. Regional acquisitions by Western banks are permitted. But they have been rare and are permitted only by banks based in states where California institutions are allowed to buy banks as well.
Some out-of-state banks have established themselves through savings and loan operations, most notably Citicorp with its Citicorp Savings unit in Oakland and Michigan National Bank with its Beverly Hills Savings Bank in Mission Viejo. In addition, foreign banks have been permitted to buy California institutions.
Eugene A. Miller, Comerica's president and chief executive, said in a telephone interview Wednesday that Comerica has operated loan offices in California since 1983 but is prohibited from taking deposits. He said the acquisition announcement came so far ahead of time in part because Comerica wanted to make its move before competitors did.
"We want to build up our franchise in California. Why wait until someone else comes along and knocks them off?," he said.
Earlier Deal Scrapped
John A. Simonson, Comerica's chief financial officer, said Comerica considered nearly virtually every banking company in the state as an acquisition candidate except for the four largest: Wells Fargo & Co., Security Pacific Corp., First Interstate Bancorp and BankAmerica. The list was narrowed to about a dozen banks before Plaza Commerce was chosen, he added.
Comerica has $11.5 billion in assets, compared to $450 million in assets for Plaza Commerce. Plaza Commerce had been scheduled to merge earlier this year with Silicon Valley Bankshares, but that deal was called off. Plaza Commerce Chairman Jack W. Conner said Wednesday that the acquisition by Comerica was not related to the scrapping of the merger with Silicon Valley Bankshares.
In exchange for the stock they now own, Plaza Commerce shareholders will receive Comerica stock worth about $114 million at current market prices. Comerica's stock dropped $1.50 a share in over-the-counter trading Wednesday to close at $56.25.
The price comes to about $16 for each Plaza Commerce share, which closed Wednesday at $14.50 a share--down 87.5 cents--on the over-the-counter market. The purchase price is nearly three times the San Jose bank's $5.60-a-share "book value"--basically its assets minus its liabilities.
That is considered a fairly hefty premium to pay for a bank. But the ratio is likely to drop by 1991 if Plaza Commerce's profits continue growing as expected.
PLAZA BANK OF COMMERCE AT A GLANCE
Assets: $451 million
Deposits: $416 million
Loans: $284 million
Net income ('88): $6 million
Net income ('87): $4 million