CalFed-Glenfed Merger Discussed
CalFed Inc. and Glenfed Inc. have been holding serious talks over the past few months about a merger that would create the nation’s second-largest thrift, according to sources familiar with the negotiations.
But prospects for a union of the thrifts, which have both been hit hard by problem real estate loans, remain uncertain, the sources said. CalFed, the nation’s fifth-largest thrift, and Glenfed, the fourth largest, declined to comment.
Based on third-quarter figures, a combined CalFed and Glenfed would be a thrift with $40.4 billion in assets, slightly bigger than Great Western Financial, the nation’s second-largest thrift holding company. H. F. Ahmanson, parent of Home Savings of America, would remain the largest.
CalFed and Glenfed nearly merged in 1989. The deal unraveled just days before it was to be announced, in part because of disagreements over which executives would run the merged company. At the time, CalFed, parent of California Federal Bank, and Glenfed, parent of Glendale Federal Bank, estimated that they could save more than $150 million annually with a merger, according to people familiar with the discussions.
Although each has slashed its operating costs since then, people familiar with the firms say substantial savings on operations could still be realized if they combined.
Any merger would almost have to involve an infusion of money from outside, and investors may prove wary. Both CalFed and Glenfed have relatively thin levels of capital, the financial shock absorber a thrift maintains to protect against losses. Adding to that concern is California’s soft economy and how much both firms will continue to be hurt by the state’s lackluster real estate market.
Los Angeles-based CalFed lost $55.5 million in the first nine months of this year. Glenfed, based in Glendale, lost $231.7 million in its fiscal year ended June 30 but lately has made substantial progress in cutting its expenses.
Last week, CalFed confirmed that it has been searching for a merger partner or major investor. Industry executives previously listed the most likely candidates as four of the state’s largest and strongest thrifts--Ahmanson, Great Western, American Savings Bank and Golden West Financial, parent of World Savings & Loan.
That disclosure came as regulators with the Office of Thrift Supervision, in a move that jolted the industry, proposed that CalFed boost its capital by a huge $375 million by the middle of next year.
CalFed called the amount excessive, adding that the regulatory pressure could thwart efforts to find potential investors or merger partners. Any attempt to involve the federal government in offering assistance or protections would probably meet resistance because government-assisted deals typically require that the interests of shareholders and bondholders be wiped out.
Separately, CalFed on Thursday said that regulators, as expected, want the thrift to pump some of the $105 million it holds into its California Federal Bank unit. Pumping a large amount of that money into the bank could prove sticky for CalFed, which must service $125 million in convertible bonds.
