Buying Thrifts Boosts B of A Profile in West
Bank of America is starting to look like Bank of Western America.
Just one year ago, California and Washington were the only states where its San Francisco-based parent, BankAmerica Corp., operated banks. But seven acquisitions of banks and thrifts since December have added Oregon, Arizona, Idaho, Utah and Nevada to BankAmerica’s sprawling retail operation.
All told, BankAmerica has spent more than $400 million to add about 250 branches throughout the West, including 66 in Arizona on Sept. 28 when it bought the failed MeraBank thrift from the federal government for $92 million. BankAmerica virtually overnight has become the third-largest financial institution in both Arizona and Oregon, states where it had no operations last year.
“They are not going into these states with just a token presence,” said Thomas K. Brown, a banking analyst at PaineWebber Inc. in New York.
BankAmerica’s string of acquisitions shows the in-state battle between California banks is turning into a larger fight for the West. In all of its major acquisitions, BankAmerica has gone head to head with Los Angeles-based rival Security Pacific Corp. and, to a much lesser extent, San Francisco-based Wells Fargo & Co. Meanwhile, First Interstate Bancorp, which is not expanding because of its struggle with losses in Texas and Arizona, still has the West’s most extensive interstate banking system.
What’s more, the battle shows that the big banks are clearly out-muscling healthy but smaller savings and loans in picking over the rubble of dead thrifts.
BankAmerica’s acquisition binge comes amid growing uncertainty in banking. Fears of a deep recession are increasing and the perils of interstate banking have been made clear in the past year as First Interstate suffered its huge losses in Arizona and Texas. Arizona’s softening economy has also proved troublesome for such banks as Security Pacific and Chase Manhattan.
Still, BankAmerica officials contend that they are building a western franchise in a low-risk way. They are acquiring the deposits and branches of failed thrifts, while leaving the bad loans, foreclosed properties and other headaches in the federal government’s junkyard of problem assets. In addition, BankAmerica executives continue to remain bullish about the West’s economy despite recession fears.
“In the long run, we think the West as a whole is a terrific place to do business,” said Frank N. Newman, BankAmerica’s vice chairman and chief financial officer.
BankAmerica’s western expansion has gone into overdrive for three main reasons.
First, it emerged from its revamping in the late 1980s as one of the stronger major banks in the country. That puts it in an enviable position of having the financial wherewithal to make acquisitions while many other major banks struggle to rebuild their capital, or their financial cushion against losses.
Second, the federal government has made available with favorable terms branches and deposits of a number of large failed thrifts in the West, allowing BankAmerica to enter states in a big way with little risk.
The third reason is a change in BankAmerica strategy that has made establishing an extensive western banking network one of its top priorities.
Much of the bank’s recovery in the past four years was fueled by profits from its California retail network and consumer business it generates from credit cards, home equity loans, mortgages, car loans and branch business. Chief Executive Richard M. Rosenberg, a marketing specialist who took over as head of BankAmerica in May, is eager to apply that touch to other states.
“I think he believes that they now have the California franchise on track and that it will generate a reasonable amount of profit for him. Now it’s time to pick up the rest of the West, much like we’ve done over the last several years,” said Terry E. Perucca, Security Pacific’s senior vice president for planning and acquisitions.
To some extent, BankAmerica is playing catch-up in its western drive. In 1983 it acquired SeaFirst in Seattle, parent of Seattle First National Bank, but further expansion was hurt as it was busy turning around from near failure in the mid-1980s. While BankAmerica was busy trying to survive, rivals First Interstate and Security Pacific continued expanding through the West.
In hindsight, missing out on those acquisitions may have been a blessing. Securities analysts believe that BankAmerica might have bought a bank with a time bomb of problem loans.
For the most part, BankAmerica’s acquisitions carry little immediate risk. The federal Resolution Trust Corp., eager to get rid of the growing number of dead thrifts it is operating, is making S&Ls; appealing by letting banks buy only the branches and deposits. The bank doesn’t have to take the problem loans and foreclosed real estate and has the option of acquiring potentially good loans.
In addition, as active as BankAmerica is, the acquisitions are small given its huge size, so it is not as if the bank is overextending itself in buying the failed thrifts. With $104 billion in assets, BankAmerica recently passed Chase Manhattan to become the nation’s second-largest banking firm behind New York giant Citicorp. Marketing also is made easier because the name Bank of America is one of the best known in banking, even in states where it hasn’t previously operated banks.
The most immediate question raised by competitors and analysts is whether BankAmerica is overpaying. Its $162.3-million bid for the failed Benj. Franklin Federal Savings in Portland, Ore., set a record for a sale of a dead thrift by the year-old RTC and was about $50 million higher than what Security Pacific offered.
Security Pacific’s Perucca said his bank’s bids reflect the highest price the bank believes institutions are worth. His reaction to the BankAmerica bid: “We were shocked.”
The bidding shows that the process is an inexact science. Newman said one reason BankAmerica bid so high for Benj. Franklin is because the Oregon thrift had few of the problems suffered by other failed thrifts. Its loans were high quality and deposits were stable. He defends the bid, saying that the amount was arrived at after careful analysis.
“These are not numbers pulled out of the air,” Newman said.
Acquiring an S&L; is always risky for a bank because customers are frequently different. S&Ls; usually offer higher rates to depositors. Many thrift customers used to higher rates leave when the acquiring bank takes over and lowers them.
In addition, S&Ls; often are thin on accounts with businesses. And banks sometimes have difficulty selling thrift customers on such services as credit cards, checking accounts, home equity loans and other products because they often use the S&L; only for a savings account.
Newman said BankAmerica is learning quickly from its thrift acquisitions and is consolidating many of the operations of its new acquisitions with its existing operations to save money.
BANKAMERICA’S WESTERN PUSH
Within the past 10 months BankAmerica has acquired seven banks and thrifts in the western United States as part of the San Fransisco bank’s strategy of building an extensive branch network throughout the area. Sept. 28, 1990 MeraBank, Phoenix Price: $92 million Branches: 66 in Arizona Sept. 7 Benj. Franklin Federal S&L;, Portland, Ore. Price: $162.3 million Branches: 66 in Oregon, 12 in Washington, 9 in Idaho and 1 in Utah. June 1 Western Savings & Loan, Phoenix Price: $81 million Branches: 61 in Arizona, 1 in Utah April 27 First Federal Savings & Loan, Bakersfield Price: $1.5 million Branches: 4 in Bakersfield April 20 Woodburn Bancorp, Woodburn, Ore. Price: $3.25 million Branches: 1 in Woodburn Dec. 1, 1989 American Savings & Loan, Tacoma, Wash. Price: $68.6 million Branches: 22 in Washington Nevada First Development Corp., Reno Price: Undisclosed Branches: 14 in Nevada
