CalFed Holds Merger Talks With Other Firms : S&Ls;: Though hurt by real estate losses, the thrift is not failing--it met its most basic capital requirement by more than $200 million.

CalFed Inc., battered by problem real estate loans and investments the past two years, indicated Wednesday that it is has been holding merger talks with other major financial institutions.

In an interview, Chief Executive Jerry St. Dennis acknowledged that the nation’s fifth-largest thrift is looking for a partner or a major investor. Other sources said serious discussions involving the Los Angeles-based thrift and other institutions have taken place for several months.

St. Dennis’ comments came after CalFed disclosed that regulators with the Office of Thrift Supervision are proposing that its California Federal Bank unit boost its capital, or financial safety net against losses, by $375 million by June 30.

In a statement, CalFed executives called the government’s proposal excessive and unprecedented, adding that it will “interfere with efforts under way to strengthen the bank’s capital through private market means.”

Asked if those efforts involve talking to prospective merger partners, St. Dennis said, “You read it right.” St. Dennis declined to elaborate or name the institutions with which CalFed has held discussions.

But the list of potential suitors with the financial wherewithal is short. The most likely names would be Great Western Financial of Beverly Hills, Los Angeles-based H. F. Ahmanson, American Savings Bank in Stockton and Oakland-based Golden West Financial.

Industry executives believe that a commercial bank, notably Wells Fargo & Co., or an out-of-state institution is less likely as a suitor.

No one is suggesting that CalFed is on the verge of failing. As of Sept. 30, it met its most basic requirement of capital by more than $200 million. Raising the bank’s capital by $375 million more would put it much higher than federal regulations now require.

But CalFed has been hit hard by losses, and last month it expressed doubts that it will continue to meet one federal capital standard for thrifts that is based on the riskiness of an institution’s loans and other assets.

Industry executives said the government’s stiff proposal reflects concern by regulators about the slipping California economy and the state’s soft real estate market. They added that the decisions to require a big boost in the amount may have been influenced by the free fall of San Diego-based HomeFed Bank, which in two years went from being one of the industry’s healthiest thrifts to an insolvent one.

Moreover, industry executives and analysts viewed the recommendation as a way to force the issue of a sale for CalFed. One possibility would be through an “assistance program,” in which the government would inject tax dollars and shield the acquirer from losses on loans that later might turn sour. Regulators have been contacting investors interested in possibly buying large ailing thrifts.

But regulators would have to deal with a number of sticky legal and political issues in arranging such a deal. On the one hand, any assisted deal would probably wipe out shareholders who now own a solvent thrift, leading to lawsuits. But any deal in which taxpayer funds are used and stockholders benefit would probably spark a political backlash.

One obstacle to any buyer of CalFed is the prospect that more loan problems will emerge. Those concerns are reflected in Calfed’s stock price--it closed down 37.5 cents to $2.625 on Wednesday--which trades at a fraction of its $23.03-a-share tangible “book value.”

CalFed nearly merged in 1989 with GlenFed Inc., parent of Glendale Federal Bank, another major thrift that has suffered real estate-related losses. GlenFed has made progress in cutting overhead. But because both have been struggling to maintain their capital requirements, a merger between the two is considered less probable today by industry executives and analysts.

Whether any of the strongest institutions would be interested in CalFed is uncertain. Most of the major players have bought thrifts in government-assisted deals.

“There hasn’t been an institution yet in this environment that has found a buyer on its own at the size CalFed is at,” said James M. Marks, an analyst with SNL Securities in Charlottesville, Va.

A spokeswoman for the OTS declined to talk specifically about CalFed but said that such things as the quality of an institution’s loans and its profit potential are major factors in determining the amount.

“Some institutions have a weaker financial condition than average; therefore, more capital is required,” spokeswoman Laurie Lavaroni said.