Security Pacific Purchases Failed Gibraltar Savings
Security Pacific Corp. said Wednesday that it has agreed to buy Gibraltar Savings, once the nation’s 10th largest savings and loan and now among the biggest failed thrifts operated by the federal government.
Security Pacific would not disclose what it paid for the Simi Valley-based thrift, which lost $750 million in the last three years on investments in risky securities, resorts and even “horse condos.”
But industry sources said Security Pacific paid between $140 million and $150 million. That topped a competing bid from Beverly Hills-based Great Western Financial, parent of Great Western Bank, which apparently was the only other bidder.
Regulators would not immediately disclose how much the failure and rescue of Gibraltar will cost taxpayers, but private estimates have reached as high as $400 million.
Gibraltar is the largest failed thrift sold by government regulators since passage last year of landmark legislation to clean up the mess in the savings and loan industry. At an expected cost to taxpayers of $500 billion over 30 to 40 years, the savings and loan failures rank as the greatest financial fiasco ever.
Still, a taxpayer cost of $400 million looks like a bargain compared to the bill taxpayers will get for the failure of such thrifts as CenTrust Bank in Miami and Lincoln Savings & Loan in Irvine, which are expected to cost taxpayers more than $2 billion apiece. The sale of CenTrust, which is slightly larger than Gibraltar, is expected to be announced Friday, and many industry executives expect Great Western to be the purchaser.
Industry executives and consultants said the losses were not as great in Gibraltar’s case in part because regulators acted quickly in seizing Gibraltar in March of last year, whipped it into shape through cost cutting and took over some assets, such as a hotel near Palm Springs and various investment securities, that proved to be more valuable than initially estimated.
However, analysts said regulators might have received a better price for Gibraltar had they been able to sell it faster.
Gibraltar’s 83 California branches--37 in the south and 46 in the north--will become branches of Los Angeles-based Security Pacific National Bank. Many of Gibraltar’s 1,500 employees are likely to be laid off as Security Pacific consolidates administrative functions and closes thrift offices near its own branches.
Jerry A. Grundhofer, president of Security Pacific National Bank, the banking firm’s main unit, would only say that there are some obvious “redundancies” between Security Pacific and Gibraltar operations.
The Resolution Trust Corp. the federal agency selling failed thrifts, would not comment on the sale. The agency had planned to announce Gibraltar’s sale Friday, but word leaked Wednesday when a memo distributed to Gibraltar employees by Eual Moore, the government’s managing agent at Gibraltar, and James Boyle, Gibraltar’s chief executive, was sent to The Times and other publications.
The government’s experience in selling Gibraltar indicates it will have difficulty attracting buyers for the largest failed savings and loans. At one time, Gibraltar was considered one of the government’s most marketable savings and loans. Its extensive 83-branch network in California was viewed as a unique acquisition opportunity for many institutions, and the executive who first ran Gibraltar for the government predicted it would be sold within six months after its was seized.
Although it is impossible to say how much more the government might have received had it acted faster in selling Gibraltar, regulators and executives say any savings and loan automatically loses value the longer it is in government hands. Wary customers move their accounts, the thrift stops offering such products as home loans, its public image suffers and key employees leave.
More than a dozen prospective buyers looked at Gibraltar, but nearly all lost interest. At least four major institutions that were expected to bid--Wells Fargo & Co., BankAmerica, Citicorp and Toronto-based Royal Trustco--ultimately passed on making a formal bid.
News of Gibraltar’s sale comes only days before the government’s self-imposed June 30 deadline for selling 141 thrifts, part of a push to dispose of thrifts as regulators face growing criticism that they have not moved quickly enough to sell failed institutions. Only CenTrust, Midwest Federal Savings in Minneapolis and a small Arizona thrift are left to reach the government’s mid-year goal.
For its money, Security Pacific takes over $5.1 billion in deposits, $3.9 billion of which are so-called “core deposits.” The government defines core deposits as certificates of deposit under $80,000, checking accounts and savings accounts. These are deposits from loyal customers considered the least likely to switch to another financial institution after a sale.
The remaining Gibraltar deposits are what the industry calls “hot money,” slang for money that is deposited by Wall Street money brokers for their clients. The brokers tend to chase the highest interest rates available, and are likely to put their money elsewhere when the sale is completed.
Security Pacific also takes over $2.7 billion in home loans and will acquire a smaller, six-branch Gibraltar operation in Washington.
Banks that acquire thrifts face the risk of losing deposits because savings and loans pay customers higher rates of interest. In Los Angeles, for example, one-year certificates of deposits offered by thrifts have recently averaged about 8.64%, compared to about 7.9% for banks.
The trick for Security Pacific will be to bring those rates into line with rates it now offers without losing customers. Gibraltar was especially aggressive in offering high rates, and at one point offered customers rates 1% higher than what they could find at competitive financial institutions. Security Pacific has the right under federal law to reset rates depositors receive after it takes over Gibraltar.
Grundhofer said he believes Security Pacific paid a fair price, adding that he believes that Security Pacific will retain many of the 400,000 accounts, which are spread across 195,000 households, because it offers more products than Gibraltar offered. “We believe that financially it is a very good deal,” he said.
Security Pacific failed last month to buy a thrift when it bid unsuccessfully for Western Savings & Loan in Arizona. BankAmerica Corp. in San Francisco emerged as the winner, bidding $81 million, $3.7 million more than Security Pacific. The cost to taxpayers of the failure of Western Savings is $1.7 billion.
