Bank Acquisition Will Give Citicorp Jump in California

Citicorp confirmed Tuesday that it plans to buy a small Silicon Valley bank, a deal that will allow the New York giant to expand quickly in California once the state’s interstate banking barriers are eased in January.

The purchase of DeAnza Holding Corp. in Sunnyvale, parent of DeAnza Bank, is expected to cost Citicorp about $8 million. The acquisition would be effective after Jan. 1, the date California’s interstate banking barriers are relaxed.

With two branches and only $35 million in assets, DeAnza would be a tiny acquisition for Citicorp, the nation’s largest banking firm with $230 billion in assets. But with a California banking charter in hand, Citicorp will be able to move promptly in buying other commercial banks in the state.

Citicorp already operates Citibank FSB, an Oakland-based thrift formed by its 1983 acquisition of the failed Fidelity Savings & Loan in Oakland. But Citicorp cannot buy commercial banks in California under the state’s current banking laws.

The move is a clear signal that expansion in California is one of Citicorp’s top priorities because of the state’s lucrative consumer banking market, including credit cards, home loans, home equity lending and car loans. In addition, banks in California have more liberal real estate investment powers than banks elsewhere. They also are being allowed to sell insurance under Proposition 103, the insurance initiative passed by voters in 1988.

Some banking experts speculated that Citicorp may be buying DeAnza in order to fold its thrift operation into the bank next year. But David A. Brooks, chairman of Citibank FSB, said Citicorp is still undecided about making that move because the advantages of doing it may not be worth the legal and other costs required.

California has limited interstate banking laws now that allow banks in most Western states to operate full-service branches in California. Under the California Interstate Banking Act of 1986, banks nationwide will be allowed to acquire banks and operate branches in California if they are based in states that allow California banks to operate there.

California banking experts disagree about what will happen after the banking laws are eased Jan. 1. Although Citicorp is expected to be active, the consensus among bankers now is that the full-scale invasion by giant New York and Chicago banks that was once envisioned will not take place because many of those banks have been weakened by bad foreign and real estate loans.

So far, the leader among out-of-state banks in taking advantage of California’s new laws is Comerica in Detroit. Last year, Comerica agreed to buy Plaza Commerce Bancorp in San Jose effective Jan. 1 for about $117 million. It has also agreed to buy InBancshares in the City of Industry for about $40 million.

NEXT STEP

California will ease its interstate banking laws on Jan. 1, opening up the state’s lucrative banking market to out-of-state banks, including some of the nation’s largest. The law will allow them to buy California banks or to set up new branches here if they are headquartered in states that allow California banks to operate freely. Already, banks in 11 Western states may enter California unless they are based in states that inhibit California banks’ operations.