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Great American Ponders Sale of Branches in State

SAN DIEGO COUNTY BUSINESS EDITOR

Great American Bank, the troubled San Diego-based savings and loan, is considering selling many of its California branches to an outside bidder, sources said Monday.

The thrift would then take the proceeds and try to survive as an independent institution with its remaining branches and assets in California, Arizona and Washington state, the sources said.

If completed, such a sale could be one of the first partial sales of a still-solvent but failing S&L; under a new approach by the Office of Thrift Supervision. Under this approach, the thrift regulatory agency would assist an institution in liquidating assets to raise capital before its value is decreased by a regulatory takeover.

Although declining to comment on Great American, OTS spokesman Bill Fulwider said his office generally is considering new ways of resolving a problem institution before it actually gets taken over and placed within the federal Resolution Trust Corp. for liquidation.

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“The idea is to try to avoid the problem that has been encountered whereby institutions go into RTC, are not sold right away and lose value, substantial value,” Fulwider said. “So what we are looking at would be less expensive to the taxpayer if we could resolve a situation early.”

Banks said to be considering bids for Great American branches and assets include Bank of America, Security Pacific, Wells Fargo, Chase Manhattan and Citicorp. According to Brea-based banking analyst Gerry Findley, banks are “scurrying around the S&L; garbage” looking for cheap funding sources, particularly branch-generated deposits because the institution can pay lower interest on them than deposits solicited from outside a branch’s service area.

Great American is still solvent, but there are widespread doubts in the industry that it can remain so unless an outside buyer or investor is found soon. Chairman and Chief Executive Gordon C. Luce has announced that he will retire later this year after a successor has been hired. James Cirona, president of the Federal Home Loan Bank of San Francisco, was offered the job, but he and the S&L; board could not agree to terms.

Great American, the nation’s eighth-largest S&L; with $15.4 billion in assets, has been fighting for its life since last December, when steep losses in its Arizona loan portfolio severely depleted its capital. Regulators have told Great American that it has until Dec. 31 to come into line with minimum capital requirements or face a government seizure.

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Recent losses have reduced Great American’s so-called tangible capital--one measure of its financial cushion against losses--to $129 million, about half the amount regulators require of an S&L; its size. The S&L; nearly broke even for its first quarter, reporting a $1.2-million loss, but disclosed that it is involved in a dispute with regulators over asset valuations that could result in write-downs of $65 million for the second quarter.

To meet the capital standards, Great American must find a buyer for all or part of its assets, restructure or bring in $350 million in outside capital. Sources said potential buyers have shied away from making offers for all of Great American because of lingering fears that the S&L; has not yet reached bottom with its problem loans in Arizona.

But scenarios now being discussed by possible bidders involve an outsider buying only part of Great American’s highly prized branch network while distancing itself from exposure to the devastated Arizona real estate market.

Under one scenario being discussed, a bidder would buy about half of Great American’s California branches and core deposits, paying up to $150 million, or about 3% of the total core deposits--those generated by the branches to be acquired. In addition, the bidder would loan Great American funds that would be convertible to stock if and when Great American solves its Arizona problems and regains its financial strength.

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With the money from the branch sale and the loan, Great American would buy time and gain a fighting chance of surviving in some form, sources said.

Times Staff Writer James S. Granelli contributed to this story.


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