Wells Fargo to Buy Great American Offices in State : Thrifts: The $492-million deal strengthens the bank’s position in the Southland by giving it 130 more branches but leaves the ailing S&L; with greatly reduced power to earn profits.
Wells Fargo & Co. said Tuesday that it agreed to buy all of troubled Great American Bank’s 130 California branches for $492 million in a deal that will greatly strengthen Wells Fargo’s market position in Southern California.
The sale also represents a desperate bid for survival by Great American, a once financially strong savings and loan that has fallen on hard times with the deterioration of its Arizona loan portfolio. The San Diego-based thrift sold the branches to raise badly needed capital to meet regulatory requirements. But in ridding itself of key assets, it may have impaired its ability to earn future profits, analysts say.
Although the acquisition is a bold statewide move for Wells Fargo, Vice Chairman Clyde W. Ostler stressed at a press conference Tuesday that the acquisition gives the San Francisco-based bank something that it has long coveted: a dominant market presence in fast-growing San Diego County. The deal, which includes 64 branches in San Diego County, thrusts Wells Fargo into the No. 1 position for deposits among banks and thrifts in the county.
In the past, Wells and other banks have found San Diego County a hard market to crack because deposits have been largely controlled by locally based savings and loan associations such as Great American, HomeFed Bank and Imperial Savings. In fact, Wells Fargo outbid three other banks for the Great American branches. Among the reported bidders were Bank of America and a joint venture of Security Pacific Corp. and the Robert M. Bass Group, owners of American Savings.
The branch sale will result in significant layoffs at Great American’s San Diego headquarters office. Great American Chief Executive Robert L. Kemper, who took over the S&L;’s reins two weeks ago, told analysts Tuesday that he soon will begin making drastic cuts in the S&L;’s overhead expenses and that the jobs of 700 Great American employees are in jeopardy.
Also in doubt is whether Great American will remain headquartered in San Diego, now that its remaining operations will be centered on its 81 remaining branches in Arizona, Washington and Colorado. Kemper said the S&L; signed a non-competitive agreement with Wells Fargo that bars it from collecting deposits or opening branches in California once the branch sale is complete.
The transaction would be a two-phase deal calling for Wells Fargo to acquire a total of $6.4 billion in deposits and $5.9 billion in loans. Wells said the sales price works out to a 6.15% premium on deposits to be acquired, a high price that analysts said reflects the value of Great American’s branch network and market leadership in San Diego County.
The first stage of the sale, to be completed by year-end, would transfer ownership of Great American’s 92 offices in San Diego, Orange and Riverside counties as well as the S&L;’s operations center in National City, Calif. The second stage, to be completed in mid-1991, would involve the transfer of Great American’s remaining 38 statewide branches to Wells Fargo.
Completion and timing of the second stage is subject to several contingencies, including the stability of deposit levels and asset performance. In a statement, Great American said it was possible that the sale’s second stage “may therefore ultimately not be completed.”
Great American’s California depositors will become customers of Wells Fargo if the transaction is approved by shareholders and regulators. Once the deal is completed, Wells Fargo said, it will honor all the rates, terms and conditions of all fixed-term accounts while adjusting rates on transaction accounts such as checking and savings to Wells Fargo’s going rates of interest.
Officials noted that Wells Fargo will be in communication with those depositors to provide comfort and prevent “deposit run-off.”
Although Great American would receive what analysts describe as a rich price for its branches, the deal calls into question the thrift’s ability to survive. On a pro forma basis, the remaining Great American would be left with $9 billion in assets, about 21% of which are problem loans that are likely to produce future losses.
The sale gives Wells Fargo most of Great American’s “crown jewels,” or high-earning loans, while leaving the S&L; with all of its problem loans, foreclosed real estate and low-yielding mortgage-backed securities, said James G. Valleo of Valleo, Cobb & Co., a Los Angeles investment banker specializing in thrift institutions.
“You may not have much earning power left in the surviving institution,” Valleo said.
Analyst Allan Bortel of Sutro & Co. in San Francisco described Great American’s chances of survival as “very difficult. That’s what the stock was saying today.” Great American stock closed down $1.25 per share at $2.125 while Wells Fargo closed up $1.375 at $80 in New York Stock Exchange trading.
Most analysts hailed the acquisition as a good move for Wells Fargo. With 24 branches and $1.6 billion in deposits already in San Diego County, the acquisition of Great American’s 64 branches and $5.5 billion in local deposits gives Wells a combined deposit base of $7.1 billion, or 16% of combined bank and S&L; deposits in the county.
Thus Wells would overtake HomeFed Bank, now in first place with $6.5 billion in local deposits at 64 San Diego County branches.
Amounting to a 17% addition to Wells Fargo’s total deposits of $37.2 billion, the acquisition still leaves Wells Fargo in third place in statewide deposits after Bank of America and Security Pacific, a spokeswoman said. Statewide, Wells Fargo operates 486 retail branches.
Even with proceeds from the sale, Kemper suggested that Great American may need to raise significant additional capital to survive. The S&L; disclosed Tuesday that its financial condition was further battered by an additional $176 million in loan-loss provisions as a result of an audit of its California loan portfolio conducted during the second quarter ended June 30.
Great American’s second-quarter net loss, which will be released Friday, should exceed $100 million.
Great American was forced into the sale by steep losses this year and last year that severely depleted its capital base. A recapitalization plan accepted by the Office of Thrift Supervision in April specified that Great American raise $350 million in capital or restructure by the end of this year, or risk a government seizure.
