Loan Problems Could Hold Up Bank Invasion : Banking: The prospect of full interstate banking in 1991 led many to predict a rush to California by out-of-state firms. As those institutions struggle with debtors, however, that seems less likely.

Not long ago, some people predicted that full interstate banking would make branches of New York banks as common in California neighborhoods as video stores and nail salons.

With the nation’s biggest consumer banking market, a growing population and a strong economy, California for years has been viewed as lucrative new territory for out-of-state banks once the remaining barriers blocking interstate banking finally fall in 1991.

But now--as New York banks and other out-of-state institutions struggle with continuing loan problems--it’s becoming increasingly clear that the big changes once predicted won’t happen come 1991. And the way that some banking officials are talking these days, a proliferation of out-of-state bank branches may not happen for a long time.

“We have no plans to buy bricks and mortar in this state, and I don’t think we would be immediately persuaded to do so,” Willard C. Butcher, chairman and chief executive of New York banking giant Chase Manhattan Corp., said in an interview in Anaheim earlier this month.

Butcher’s comments mirror the feelings of many banking officials: Full interstate banking may enter California with “a yawn,” as Wells Fargo Chairman Carl E. Reichardt has put it.

There is limited interstate banking in California now. Banks in most Western states could buy banks in California, so long as banks here have the same right to buy banks in those states. And out-of-state banks are allowed to buy and operate thrifts in the state, as New York’s giant Citicorp has done.

In addition, out-of-state banks can operate a number of businesses in California that do not need to be run out of a full-service branch. They can offer credit cards, make business loans and finance home purchases. The main barrier remaining is that they cannot buy banks and take in deposits.

That changes on Jan. 1, 1991. And the prospect of full interstate banking led many to predict an invasion by New York banks.

But banking executives now believe that any expansion by out-of-state banks into California may be blunted because of pressures on those institutions to conserve capital--the financial cushion that institutions must maintain to protect against losses. Concerns over having enough capital are especially growing at many banks in the wake of problems with Latin American loans and with increasing real estate problems in the Northeast.

“I think it will be slow, steady progress toward interstate banking,” said California Supt. of Banks James Gilleran. “This is going to take time.”

Chase Manhattan, Chemical Banking, Manufacturers Hanover and J. P. Morgan recently set aside large amounts of money for problem loans in Latin America, and most were forced to replenish capital by selling more stock. In addition, the primary strategy of some New York banks, especially Bankers Trust and J. P. Morgan, is investment banking rather than interstate banking.

Furthermore, acquisitions in California won’t come cheap for out-of-state banks, executives and consultants believe. The consumer market has become highly competitive among the state’s major banks. Any outsiders seeking branches are likely to face competition from California institutions, which can bid the price up knowing they will ultimately save money combining newly acquired operations with their existing ones.

Chase Manhattan’s Butcher says the company operates what arguably could be called a “$5-billion bank” here, when one includes such things as its credit card accounts, the business it does with California corporations and some mortgage loans it makes to wealthier home buyers.

Buying branches in California and operating them is tempting, he says, because deposit rates that banks and thrifts offer here are lower than in many other areas. But an extensive system would be difficult to efficiently administer from across the country, which is a lesson that he says Chase has learned in Arizona.

“Strategically, to have a small bank 2,500 miles from home is a very inefficient way to compete, so I don’t think we’ll repeat that mistake,” Butcher said.

Arizona’s collapsing real estate market has hurt banks operating there, including Chase. In the third quarter, Chase was stung with an $85-million after-tax charge stemming from its Arizona problems.

Still, some out-of-state banks may buy branches here anyway.

Comerica, a large regional bank in Detroit, has already agreed to buy a San Jose bank effective Jan. 1, 1991. And First Interstate Bancorp, a Los Angeles-based banking company troubled by problem loans in Texas and Arizona, is frequently mentioned as a potential takeover candidate for an out-of-state bank, and its stock continues to sag.

Citicorp, the nation’s largest banking firm, is mentioned as the most likely New York bank to move aggressively into California. It has already built Citicorp Savings, the state’s 15th-largest thrift, through its acquisition of ailing Fidelity Savings in San Francisco in 1982 and of 50 Sears Savings branches in 1987.

Of the other New York banks, Chemical Banking, parent of Chemical Bank, which expanded into Texas in 1987 and into New Jersey earlier this year, is frequently mentioned as a likely candidate to expand in California. Outside New York, North Carolina’s aggressive NCNB, which already owns a bank in Texas, is frequently mentioned as well, although publicly it says its main concern is digesting its Texas acquisition.

James B. Bemowski, a banking specialist in Los Angeles with McKinsey & Co., said that on the surface it does not appear as though out-of-state banks will immediately invade California once the interstate banking barriers fall.

But Bemowski argues that the scenario could change quickly if one of three things occurs. First, a sharp increase in problem real estate loans, and in loans made on some corporate buyouts, could strain capital at California banks, forcing them to seek merger partners.

Second, Bemowski says, some West Coast banks may develop new strategies and choose to link up with out-of-state banks to create large nationwide institutions that can more effectively compete worldwide with large Japanese and European banks. Third, he says, out-of-state banks may buy thrifts, if good opportunities arise, and try to convert them to banks.

For the most part, many executives--including Butcher, who plans to retire in 1991--believe that New York banks will first seek to grow in nearby states before they expand to California.

Although some banks will try coast-to-coast mergers, Butcher says, the most successful banks will first try to “regionalize” by expanding to nearby states, as NCNB has done successfully in the South and Texas. After that, he says, they might move toward building a national system, which could take 20 years.