Tight Lid Kept on Talks Till Very End : Merger: A proud name will be lost. Deal reflects strong rebound by B of A.

The courtship began in February when BankAmerica chief executive Richard M. Rosenberg placed the initial phone call to his Security Pacific counterpart, Robert H. Smith, just two months after merger talks between Security Pacific and Wells Fargo had collapsed.

The wooing began in earnest six weeks ago when Rosenberg, calling on the Los Angeles Raiders football team--a B of A customer--at its training camp in Oxnard, took a side trip to Los Angeles to meet with Smith. Clearly, the San Francisco banker said Monday, he had more on his mind than “seeing (former 49er star defensive back) Ronnie Lott in a Raider’s uniform.”

Once they had agreed that the transaction BankAmerica officials had code-named “Project Sunshine” made strategic sense, the two men turned to organizational issues--who would run what, where the headquarters would be--and then, finally, to price. “That’s where the tough bargaining took place,” Smith said.

Last week, as the banks closed in on a deal, top credit officers of each institution were secretly dispatched to the Biltmore Hotel in Los Angeles to pore over each others’ loan portfolio.

Their historic agreement, inked around midnight Sunday in Los Angeles, will reshape West Coast banking.

“Their market power in the West will truly be mind-boggling,” said Donald Moore, a managing director at Morgan Stanley & Co., which advised BankAmerica in the transaction.

Nor will that market power likely be restricted to the West for long. “This is a bank that will have the capital and the clout to buy any bank they want in the East,” said Richard E. Thornburgh, a managing director of First Boston, investment bankers for Security Pacific in the transaction.

The deal will also extinguish a proud name in California banking, Security Pacific, whose antecedents date to 1871 and include the first bank ever incorporated in Los Angeles.

“It brings a bit of a touch of sadness,” said Smith, but “it is in our interests to set aside the issue of losing the name” and focus on what he said would be the many benefits that the combination will bring.

That BankAmerica would come out on top in a megamerger like this would have been hard to imagine a few years ago. At the time, the company and its Bank of America unit were battling problem loans and other woes and BankAmerica was forced to sell such prized assets as its Charles Schwab & Co. discount brokerage unit and the bank’s personal trust business in order to survive and ward off a hostile takeover attempt by Los Angeles-based First Interstate Bancorp.

This is not the first time B of A has managed to avoid disaster only to emerge a stronger institution.

Two years after founding what was then known as Bank of Italy in San Francisco, former wholesale grocer Amadeo Peter Giannini found himself operating out of a tent on a pier after the earthquake and fire of 1906. While other banks remained closed, Giannini, who had managed to rescue $1 million in gold bullion and cash from his tiny institution’s vault, made loans to cash-starved San Franciscans eager to rebuild.

The episode helped fuel the growth of a bank that Giannini had created to serve the small borrowers and depositors and burnished its reputation as “The Litte Fellow’s Bank.”

From such populist beginnings, the bank quickly grew and was instrumental in the development of such California industries as agriculture and entertainment.

It was a young Walt Disney who invited a Bank of America vice president to preview an unfinished version of his first feature-length film, “Snow White and the Seven Dwarfs.” Disney, who urgently needed a loan to complete the picture, was disappointed when the banker never cracked a smile during the showing, said Disney archives director Dave Smith.

But while the two men walked across a studio parking lot, the banker “turned around to Walt and told him ‘this movie is going to make you a potful of money,’ ” the archivist said. B of A made the loan.

B of A, which was a pioneer of branch banking and bank credit cards, also built a strong bond between its depositors and lenders.

George Parker, a former Security Pacific executive who now teaches banking at the Graduate School of Business at Stanford University, said he was always surprised at the loyalty among B of A customers he tried to woo.

“They always had stories about how the bank stood by them during lean times,” said Parker. “Both of those banks have had a legacy of extraordinary (customer) loyalty.”

By 1945, Bank of America had overtaken Chase Manhattan as the nation’s largest bank. The bank continued to flourish during the postwar years, feeding off the housing and business boom in California. It also spread its international reach, opening offices in Asia and drumming up business among developing nations.

But by the early 1980s, Bank of America was in deep trouble. Loans to Third World nations, agribusiness and real estate soured and the bank was gushing red ink. Meanwhile, other California banks, such as Security Pacific and First Interstate, had emerged as strong rivals on Bank of America’s home turf.

In response to the ordeal, Bank of America dramatically scaled back operations, laying off thousands of workers, closing branches and cutting assets by nearly $30 billion. In 1986, it rehired former chairman A.W. (Tom) Clausen, along with a cadre of Wells Fargo executives, to help restore order.

By 1989, B of A had managed a stunning recovery, posting more than $1 billion in profits that year. It then went on a buying binge in which it has purchased numerous banks in the Western United States.

The merger with Security Pacific will cap that recovery. “I think there has been a transparent desire on the part of Bank of America to regain lost ground in terms of size and clout on the American banking scene,” said Parker. “The merger does allow them to regain much of that lost ground.”

For Security Pacific, the merger with BankAmerica is the latest of many combinations since its predecessor was founded in 1871.

That year, a Los Angeles merchant who offered residents the use of his safe to protect their gold dust and nuggets opened the Farmers and Merchants Bank, the first incorporated bank in Los Angeles.

Soon afterward, a group of San Diego entrepreneurs set up a banking outpost in Los Angeles. While their dreams for San Diego to become the state’s premier port were doomed by the Southern Pacific railroad’s arrival in Los Angeles, their bank--First National--prospered, with the booming growth of Los Angeles.

In the 1880s, attorney Joseph Sartori from Iowa struck it rich in Southern California real estate and launched a bank later named the Security Trust and Savings Bank, which had established itself as a major savings bank throughout Southern California by 1912.

In 1929, Security Trust merged with First National, creating a 142-branch banking giant that ranked among the nation’s 10 largest and included the old Farmers and Merchants.

With the Depression and World War II intervening, the bank did not resume its expansion until the 1950s, when it continued merging with smaller banks. It took the name Security Pacific after a 1968 merger with Pacific National Bank of San Francisco.

Initially, Security Pacific was popularly identified with Southern California, while Bank of America was the financial giant in the north of the state. “Those distinctions gradually blurred over time,” said David Shulman, managing director with Salomon Brothers investment firm in New York.

By the early 1980s, Security Pacific had become one of the biggest banks in the country. Moreover, it escaped some of the woes suffered by Bank of America and other huge banks.

Whether that reflected foresight or simply good fortune remains subject to some debate: “My reading of it is that they were just lucky,” said J. Kimball Dietrich, an assistant professor of finance at USC.

By late in the decade, high-flying Security Pacific was even touted as a possible savior for then-struggling BankAmerica. But fortunes were to be reversed.

Under the leadership of Richard J. Flamson, Security Pacific not only increased its assets and developed a glamorous, go-go reputation, but it also leaped into global merchant banking and other financial endeavors.

By the turn of the 1990s, these new thrusts--including troubled real estate investments in the United Kingdom and Australia--were costing the bank money.

“If they stuck closer to home, I don’t think they would have had some of these problems,” said Edward Z. Emmer, executive managing director at Standard and Poor’s, responsible for rating financial institutions. He added: “By extending beyond that franchise, that’s how they got into difficulty.”

Joseph F. Alibrandi, chairman and chief executive officer of Whittaker Corp. in Los Angeles and a Security Pacific director, said the board did not look at the B of A offer in a vacuum. “All of the possible combinations (of Security and other banks) were reviewed,” he said.

“But we felt this one was a big advantage for California. The state needs an international bank. This gives us the chance to be in there competing with the rest of the banks around the world.”

Many bank stock analysts and investment bankers were shocked that BankAmerica and Security Pacific were able to keep their talks so secret. Deals of this size involve so many bank officers, investment bankers and lawyers that word often leaks out--or at the very least, rumors get started.

In this case, the lid stayed on tight until the end. That may be because Rosenberg and Smith personally negotiated so many of the details, deciding, for example, that the surviving company’s board would be divided 50-50 between the two banks. With the help of their chief financial officers, they also came up with the combined lineup of top officers as well as compensation packages and severance arrangements.

All together, there were 500 points in the contract that had to be negotiated, an investment banker who worked on the deal said.

“It was brilliantly executed as far as the cloak of secrecy goes,” said one Los Angeles investment banker.

Indeed, on Friday, Security’s stock lost 62.5 cents to $23, and B of A was up 50 cents to $37.375.

Until a week ago, “you could have counted the number of people involved at both institutions on a hand and a half,” said one investment banker who worked on the transaction. “The tough issues had been resolved by the CEOs.”

Times staff writers Jesus Sanchez, Jonathon Peterson and Tom Petruno contributed to this story.

A New BankAmerica

A profile of the new BankAmerica after its proposed merger with Security Pacific:

Leadership: Richard M. Rosenberg, BankAmerica chairman and CEO; Robert H. Smith, president and chief operating officer. Now, Rosenberg is chairman and CEO of BankAmerica and its bank; Smith is chairman and CEO of Security Pacific Corp. and its bank.

Combined assets: $190 billion

Combined equity capital: $12 billion

Branches: Over 2,300

(Branch closings are expected)

Employees: 93,987 (Layoffs are expected)

Board: 30-member board of directors--15 members of the current BankAmerica board and 15 of the 23 from Security Pacific

Headquarters: Both San Francisco and Los Angeles, but corporate offices will remain in San Francisco