Security Pacific Buys Chunk of Failed Mercury : Banking: The holding company paid $44.4 million to acquire $330 million of the S&L;’s assets and all of its branches, five in Orange County.
Security Pacific Corp. said Friday that it has acquired the 24 branches and some of the assets of Mercury Savings & Loan, the insolvent thrift seized earlier this year by federal regulators.
The Los Angeles-based bank holding company paid $44.4 million to acquire $1.4 billion of Mercury’s deposits, $330 million of its assets and its offices--including five branches in Orange County and 12 in Los Angeles.
The Resolution Trust Corp. retains $1.2 billion of Mercury’s assets, which consist largely of multiple-family residential loans and commercial loans. The RTC provided Security Pacific $859 million to cover the difference between the liabilities and assets it assumed.
RTC spokeswoman Kate Spears said that the resolution of Mercury ultimately will cost the taxpayers $34 million.
Jerry A. Grundhofer, president and chief executive of Security Pacific National Bank, said the company acquired Mercury because the thrift--crippled by a change in federal accounting rules for S&Ls; and some bad commercial loans--fit well with its existing customer base.
“Its branch system solidifies our already-strong market share, particularly in Southern California,” he said.
The RTC, the federal agency formed to handle troubled thrifts, approved the sale. Spears said there were three final bidders for Mercury, but she declined to identify the other two.
Bank sources said the loans kept by the RTC either didn’t fit Security Pacific’s standards or its investment strategy. But they added that few were actually in default.
Mercury was taken over by regulators Feb. 23 after a $40-million loss for 1989 drove it into insolvency. It has been run by the RTC since.
Grundhofer said Mercury has a loyal customer and employee base that will make the transition easier to accomplish. “And it was a very good deal for our shareholders,” he added. “We were able to obtain it for a very attractive price.”
This is the third failed S&L; that the bank has acquired, and Grundhofer indicated that other purchases are anticipated.
“I think there will continue to be opportunities that we will be very interested in” as the government continues selling the healthy pieces of a growing number of failed thrifts, he said.
Grundhofer said Mercury’s offices will be turned into Security Pacific branches within 60 to 90 days. Until then, they will continue to operate under the Mercury Savings name.
Deposits up to $100,000 will remain insured by the government and all offices will be open for business today.
Grundhofer said several Mercury offices located near Security Pacific branches ultimately will be closed down and turned back to the RTC for disposal, but he declined to identify them.
Of the assets that Security Pacific acquired, all but $27 million are first-trust deeds on residential properties, he said. Consumer loans account for $9 million and the remaining $18 million is in residential second-trust deeds.
Grundhofer said Security Pacific will gain 110,000 new customers and 500 new employees through the acquisition.
He would not comment on specific plans for Mercury’s staff but said that when Security Pacific acquired failed Gibraltar Savings in June, “the branch people were all offered positions with Security Pacific. But there was dislocation at the (corporate) staff level.”
RTC officials said the Mercury sale was one of the quickest on record--the institution was only in government hands for seven months. The agency currently is attempting to sell 223 thrifts nationwide.
While Mercury was declared insolvent before being seized, its losses largely were caused by new government accounting requirements that forced it to write down the value of millions of dollars in loans and other investments--write-downs that ate up its operating profits and its capital base. A pair of hotel-construction loans that went sour last year also contributed to the thrift’s woes.
Government regulators and thrift industry consultants say that Mercury, founded in 1964, was not riddled with the insider abuses and speculative investments that have caused the ruin of many of the nation’s thrifts and left taxpayers facing a cleanup bill estimated at $200 billion--and growing.
Mercury grew from a one-office S&L; to a $5-billion institution by the mid-1980s, largely on the strength of Chairman Leonard Shane’s commitment to single-family mortgage lending.
The outspoken Shane, a former advertising executive and a lifelong Democrat in a business top-heavy with stalwart Republicans, parlayed his defense of the S&L;’s traditional mortgage-lending role in an era of deregulation into a position as a major S&L; industry spokesman. In 1982, he served as president of the U.S. League of Savings Institutions.
While Shane was preaching the virtues of residential lending, Mercury began taking advantage of some of the freedoms of deregulation. The thrift made some big commercial loans that later soured.
But more important, it adopted accounting techniques that allowed it to book profits before they were actually realized. A change in accounting rules forced the company to write off the earlier profits, depleting its capital base and ultimately rendering it insolvent.
