Great American Says Branch Sale a Must for Survival
A proxy statement to be mailed this week to Great American Bank’s shareholders uses blunt language to underscore the “urgent” need to complete the proposed $491-million sale of the S&L;’s California branches to Wells Fargo Bank.
The proxy statement blames a previously announced $107.9-million second-quarter loss for the new sense of urgency. The loss boosted Great American’s capital shortfall beyond the $350 million that Great American executives previously estimated as necessary to meet the federal Office of Thrift Supervision’s minimum capital requirements.
With that loss, Great American’s need for additional capital “has become even more urgent and the amount of capital necessary for compliance is greater,” according to the document. Later this month, Great American will present the OTS with a “revised capital plan” that describes how the S&L; will counteract the most recent quarterly loss, its subsequent reduced level of capital and proposed changes in Great American’s business plan.
According to the proxy statement that was released Tuesday by Great American, the S&L;’s most recent quarterly losses reduced its tangible capital on June 30 to $32.2 million, or 0.21% of tangible assets, which is $194.8 million less than the OTS minimum. Great American’s core capital and risk-based capital, two other capital measurements, were, respectively, $278.8 million and $450.9 million below require levels.
While the 200-page proxy describes the complex sale of Great American’s California branch system to Wells Fargo as the “first major step in the restoration of the bank’s capital,” it cautions that S&L; executives have “no assurance that OTS will approve the branch transfer or Great American’s revised capital plan.”
However, if the deal is completed, the sale would generate an after-tax gain of $135.8 million for the troubled S&L;, according to the document.
Throughout the proxy, Great American’s management cautions that unless the sale takes place, federal regulators would appoint a conservator or a receiver, and that the bank would be “deprived of any chance of continuing as an independent entity.” If that were to occur, “stock in Great American would in all likelihood be rendered worthless,” according to the proxy statement.
The bleak document also notes that there are no guarantees that the OTS and other federal regulatory agencies would approve the branch sale. And, even if the sale is completed “the OTS may require higher than normal capital levels for Great American, and (regulators) may impose operating restrictions on the bank in connection with any such approval.”
According to the proxy, Great American already has “discontinued all lending” other than single-family residential lending, some secured consumer lending, previously contracted loans, and loans that will help the S&L; deal with foreclosed real estate or the company’s now-curtailed real estate development businesses.
The proxy also outlines restrictions that Great American would operate under should the branch sale be completed.
For five years after the deal is completed, Great American and its affiliates would be prohibited from soliciting customers in areas where Wells Fargo has acquired branches from Great American. The San Diego-based S&L; would be prohibited from using its mailing lists, customer lists and depositor lists to solicit customers.
According to the proxy statement, in July, Robert L. Kemper was awarded a one-year contract that includes a $420,000 salary as Great American’s chairman, chief executive officer and president. Kemper also will receive a $20,000 relocation payment plus stock options, according to the proxy.
Great American shareholders will vote on the proposed sale during a 10 a.m. meeting on Oct. 18 at Symphony Hall in downtown.
