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 their 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.
“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 on 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.
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 reached bottom with its problem loans in Arizona.
But scenarios 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, 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 additional funds that would be convertible to stock if and when Great American solves its Arizona problems and regains its financial strength.
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. And by making the convertible loan, the bidder stands to acquire a significant stock position in the surviving S&L.;
However, there is considerable risk for an S&L; in selling its “crown jewels,” as one source described the Great American branches in California under discussion. The sale of healthy, productive branches can seriously jeopardize the viability of the remaining institution, said Allan Bortel, an investment banker with Sutro & Co. of San Francisco.
“Just to sell off your good assets--essentially, your valuable branches--has to be done with regulators and shareholders understanding that this is all that can possibly be done” to save the institution from a takeover, Bortel said. “The reason that buyers have backed away from (buying) the whole company is because of the real estate risks. They haven’t wanted to take on the uncertainty of Arizona real estate.”
Times staff writer James S. Granelli contributed to this story.