THE TIMES 100 : Banks, Thrifts Face Further Cost Cuts, Consolidation : Institutions are under financial and regulatory pressure to boost performance.
For California banks and savings and loans, stable interest rates and a continuing economic recovery should boost loan volume and profits in 1995, as has already been shown in robust first-quarter earnings reports.
But even if they get a breather from interest rate turbulence, bankers and thrift executives can’t expect a year of relaxation.
Among the issues they face are stockholder unrest, the ongoing consolidation wave, changes in the regulatory and legal landscape and the never-ending feud between banks and thrifts over responsibility for the savings and loan disaster of the 1980s. And the downside of the interest-rate hikes by the Federal Reserve last year could be flattening economic growth and slackening demand for loans later this year.
Big investors, impatient with laggard stock prices, are pushing banks to step up their performance or sell out. For example, Michael F. Price, whose Heine Securities Corp. holds 6.1% of Chase Manhattan Corp., has said he thinks America’s sixth-largest banking company would be worth more if it were broken up and sold off.
While no stockholder has targeted any of the West Coast banks in a similar way, they still feel pressure to boost stock prices.
Wells Fargo & Co., which bought back $760 million worth of its stock last year, just announced a new repurchase program of another 5 million shares. BankAmerica Corp. said it is considering similar action.
Analysts also think there is more room to cut costs.
In one of the most unusual stock-boosting ploys, California Federal Bank in March announced that it would spin off to shareholders a direct, 25% interest in its lawsuit against the U.S. government arising from CalFed’s takeover of some ailing thrifts in the early 1980s.
Another hangover from the savings and loan crisis is the industry’s continuing financial burden from thrift bailouts.
The issue has long been simmering, but it broke into the open earlier this year when the Federal Deposit Insurance Corp. proposed sharply reducing the deposit insurance fees that banks pay while keeping the thrift fees level.
Bank fees would drop from a little over 23 cents per $100 of deposits to as low as 4 cents per $100. The savings and loan industry screamed that the disparity would hand the banks a huge and unfair price advantage on deposit rates.
Great Western Financial Corp. Chairman James F. Montgomery believes that Congress has focused on the issue and will resolve it this year.
However, Great Western, the nation’s second-largest thrift, is hedging its bets in a big way: It has applied for national banking charters in California and Florida. In case Congress doesn’t act, Great Western will use the charters as a way of dodging the thrift disadvantage and attracting deposits through new commercial banks.
On the merger-and-acquisition scene, the biggest bank combination of 1994 was BankAmerica’s takeover of Continental Bank Corp.
Already announced this year--and effective in 1996--is the biggest bank merger in history: The marriage of Mitsubishi Bank and Bank of Tokyo will create the world’s largest bank, with considerable implications for California.
The expected merger of their San Francisco-based U.S. subsidiaries--Bank of California and Union Bank, respectively--will make the combined, $25-billion-asset institution nearly as large as First Interstate Bankcorp.
Some analysts believe that the Mitsubishi-Bank of Tokyo deal will call further attention to the relatively high cost structures of American banks.
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Top Financial Institutions
The largest banks, savings and loans and thifts in California, ranked by asset size.
Assets Rank Company City ($ millions) 1 Bank of America San Francisco 147,670 2 Home Savings of America Irwindale 53,607 3 Wells Fargo Bank San Francisco 52,215 4 Great Western Bank Chatsworth 39,697 5 World Savings and Loan Oakland 31,027 6 First Interstate Bank of Calif. Los Angeles 25,250 7 American Savings Bank Stockton 18,552 8 Union Bank San Francisco 16,872 9 Glendale Federal Bank Glendale 15,687 10 California Federal Bank Los Angeles 14,215 11 Household Bank Newport Beach 9,487 12 Coast Federal Savings Los Angeles 8,212 13 Sanwa Bank California Los Angeles 7,975 14 Bank of California San Francisco 7,706 15 Sumitomo Bank of Ca. San Francisco 5,076 16 Downey Savings and Loan Downey 4,650 17 ITT Federal Bank Newport Beach 4,273 18 First Federal Bank of Calif. Santa Monica 4,156 19 Bank of the West San Francisco 4,046 20 Fidelity Federal Bank Glendale 3,735
Sources: U.S. Office of Thrift Supervision; California State Banking Dept.; State Dept. of Savings and Loans.
