Downey Savings Takes Itself Off the Market : Thrift: The S&L;’s stock price dropped on the news it plans to remain independent and acquire other institutions.
Downey Savings & Loan on Wednesday took down its “for sale” sign after four months by revealing plans to remain independent and boost its size--a strategy that sent its stock price tumbling on Wall Street.
The profitable S&L;, long considered one of the industry’s better managed thrifts, said its new direction includes acquiring other thrifts, increasing its cash dividends to shareholders and taking its time selling some of its prized real estate holdings.
The thrift also said that Robert L. Kemper, 64, its president and chief executive, will retire as planned when his contract ends in June. A search for a new top executive has begun.
Downey’s stock soared in July when the thrift announced that it had hired Lehman Bros., a New York investment banker, to study a “range of strategic alternatives” for improving operations and bolstering shareholder value.
Those alternatives included a merger or sale of the institution or the sale of its real estate holdings. With 52 branches mainly in Southern California and $3.5 billion in assets, Downey would be a good catch.
But Wednesday’s news sent speculators scurrying as the stock price dropped nearly 15% to $21.125 a share on the New York Stock exchange from $24.75 a share on Tuesday.
“Obviously, a lot of people were disappointed because it looked like a sure takeout,” said Allan G. Bortel, research director for Dakin Securities Corp. in San Francisco. He suspected that the thrift was holding out for too high a purchase price.
Downey executives conceded that the S&L;’s new strategy caused some shareholders to sell, but they said the Newport Beach thrift is one of the strongest financial institutions in the nation, far exceeding federal benchmarks for a well-financed operation. At its most conservative calculation, Downey is sitting on $62 million in excess capital.
The S&L;’s announcement also revives memories of previous efforts to find replacements for its aging co-founders, Maurice L. McAlister and Gerald H. McQuarrie.
Through the late 1980s, several attempts to turn the reins over to younger executives failed. Two years ago, regulators pressured the co-founders into giving operating control to Kemper and F. Anthony Kurtz, then 50 and believed to be the heir apparent.
Kemper, a former Wells Fargo vice chairman, was well-liked by thrift regulators. However, Kurtz, a former H.F. Ahmanson & Co. executive, worked in the shadows of the stronger Kemper, and quit unexpectedly last July.
McAlister, 67, Downey’s chairman and single-largest shareholder, said directors reviewed Lehman’s alternatives and decided that remaining independent and spurring the S&L;’s growth would “best serve the long-term interests of the shareholders.”
Directors also decided to:
* Increase quarterly dividends from 9 cents a share to 12 cents.
* Consider creating a holding company to help it with future acquisitions and other transactions.
* Keep its real estate development subsidiary, which holds about $100 million worth of shopping centers, loans and residential tracts. It plans an orderly sale of those properties over time.
Downey had been the biggest developer of neighborhood shopping centers in California and Arizona before a 1989 federal law limited thrifts to less than 2% of such holdings and required them to sell the rest by mid-1994. Downey now has less than 2% invested directly in real estate projects.
