Shareholders OK Security Pacific’s Merger With B of A
The largest banking merger in history was approved overwhelmingly Thursday by shareholders of BankAmerica Corp. and Security Pacific Corp. amid the backdrop of a sliding California economy and growing uncertainty for banks.
Both BankAmerica Chief Executive Richard M. Rosenberg in San Francisco and Security Pacific Chief Executive Robert H. Smith in Los Angeles took note of the worsening economy and the problems it is causing the banking industry in asking shareholders to approve the deal.
Rosenberg, who will serve as chief executive of the merged bank, said the loan portfolios of BankAmerica and Security Pacific will feel “great stress” if the recession worsens next year. Smith said the weak economy “will financially challenge our customers for some time--particularly here in California.”
Even so, both argued strenuously that the merger is critical as part of a much-needed consolidation of the nation’s 12,600 banks.
“The inescapable truth is that there are just too many banks in this country chasing too few customers,” Rosenberg said. The banks have estimated that they can save $1.2 billion a year by combining, much coming through layoffs that have been estimated at between 10,000 to 20,000.
Shareholder approval of the deal, valued at $3.9 billion Thursday, was expected. About 98% of the shares voted at each bank were cast for the combination.
The merger, which will create the nation’s second-largest bank behind Citicorp, still needs approvals from the Federal Reserve Board and Justice Department.
Among questions that shareholders posed to Rosenberg was whether it is wise to acquire a bank with the problem loans Security Pacific has.
“That’s a lot for you to swallow,” shareholder Peggy Smith of Placerville told Rosenberg, who responded that the bank has the “talent and expertise” to work through the problems.
Smith faced a more hostile group of shareholders. Many were especially upset about the suspension of the bank’s dividend to conserve capital and recent Security Pacific losses.
Responding to one of the most embarrassing issues, Smith for the first time publicly defended payment of about $13 million in cash to 21 senior executives with Security Pacific and its affiliates--including about $2 million to himself. The payout is to buy restricted stock that the executives were given as incentives in early 1990.
Smith said he and the other executives wish that they could have taken the payments in BankAmerica shares rather than cash. But, he said, the merger agreement called for the stock to be purchased, adding that BankAmerica generally does not give senior executives restricted stock.
He also defended a “golden parachute”--three times his annual salary, the average of his last three annual bonuses and other benefits--that he will receive if he is not picked to succeed Rosenberg.
Smith, who will become BankAmerica president and chief operating officer, said he would like to succeed Rosenberg, 61, but will accept whatever decision BankAmerica’s directors make then.
The tone of both meetings was serious, except for a light moment that resulted from a slip of the tongue by Smith. At one point, he referred to the “merger” as a “murder” agreement.
James Bates reported from Los Angeles; Martha Groves reported from San Francisco.
