Takeover of Irvine Bank May Be Start of Consolidation Wave
Monday’s announcement by Washington Mutual Inc. that it will take over American Savings Bank of Irvine could be the start of a wave of mergers in the state’s thrift industry, which analysts and investors have been waiting on for years.
The announcement adds fuel to speculation that the state’s major thrifts, and some of the smaller ones, are finally ready to be gobbled up either by an out-of-state financial institution eager to tap California’s valuable market or by a California thrift hungry to expand.
At the top of the handicappers’ lists: California Federal Bank, Glendale Federal Bank and Coast Federal Bank. In addition to their sizable assets, healthy balance sheets and desirable branch networks, the three stand to benefit handsomely from the U.S. Supreme Court’s recent decision against the federal government in a breach-of-contract suit.
Other likely targets include the state’s two largest thrifts, H.F. Ahmanson & Co., parent of Home Savings of America, and Great Western Bank.
But even smaller, well-managed institutions, from Cenfed Bank in Pasadena ($2.1 billion in assets) to Bay View Federal Bank in San Mateo ($2.9 billion), make attractive targets for a financial giant looking to fill gaps in its market, analysts said.
“I hate to say bankers behave like lemmings, but they do behave like other bankers,” said Thomas F. Theurkauf Jr., an industry analyst with Keefe Bruyette & Woods in New York. “To the extent Washington Mutual has opened up the floodgates, we will see others follow this action.”
Still, rumors about such takeovers have been commonplace, with little activity until now. For one thing, executives at the target thrifts are thought to be holding out for premium prices, which likely acquirers have heretofore been reluctant to pay.
For another, there are few institutions big enough to take over thrifts as large as Ahmanson ($50.4 billion in assets), Great Western ($41.3 billion) or even Los Angeles-based CalFed (with $14.4 billion).
In state, San Francisco’s First Nationwide Bank is the most often mentioned acquirer of other thrifts.
“When the rumors fly, First Nationwide is always the one with the dance card, and Coast Savings [parent of Coast Federal] is always at the top,” said Charlotte Chamberlain, financial services analyst with Wedbush Morgan Securities in Los Angeles.
Carl B. Webb, First Nationwide’s president, acknowledged that the bank was actively looking. “It’s well known that we’re interested in making an acquisition in California,” Webb said Monday from Atlanta, where he is viewing the Olympic Games. “There are several companies we’re interested in,” including CalFed, he added.
Other oft-mentioned potential acquirers: NationsBank or First Union, both of North Carolina; Banc One or KeyCorp, both of Ohio; and Norwest or First Bank System, both of Minnesota.
The time is ripe, analysts said. The industry has put behind the troubles of the 1980s, when it was on the verge of collapse.
Recapitalizations and restructurings have put the major thrifts back in financial health, and the state’s recovering economy has helped earnings at most institutions.
The thrifts are poised to take advantage of the long-hoped-for recovery in the real estate market, and rising interest rates bode well for the industry, analysts said.
There are some trouble signs, however.
Home loan delinquencies are on the rise nationally. In addition, a recent wave of mortgage refinancings saw a widespread shift from variable to fixed-rate loans, which means lower rates for thrifts, according to Friedman, Billings, Ramsey & Co., an investment banking firm in Arlington, Va.
Nevertheless, there is room for consolidation or takeover. “The state has the largest economy in the nation, and the largest banking and financial services market . . . but [the thrift industry] remains very fragmented,” said Keefe Bruyette’s Theurkauf.
He added: “The common wisdom is that the state has turned the corner, and the growth prognosis is probably better than for the country as a whole. So it’s a place you want to be.”
If there are takeovers, analysts doubt that the thrifts will command premium prices, certainly nowhere near the 8% premium over deposits that earlier sales of East Coast thrifts brought. The figure, a measure of the price of a thrift, represents the excess amount paid over the deposits acquired.
In the case of CalFed, GlenFed, Coast and other thrifts with pending claims against the federal government, setting a price is complicated by the need to account for possible settlements.
The U.S. Supreme Court earlier this month ruled in favor of the thrifts in their suit charging that the federal government reneged on promises of favorable accounting treatments it made to enlist their aid in taking over failing savings and loans in the late 1980s.
GlenFed has sued for $1.5 billion. The others have not set specific damage figures, but stand to gain hundreds of millions of dollars.
The amounts could add $4 to $10 per share to the value of the thrifts’ stock, depending on the final outcome of the claims. CalFed already has spun off 25% of the value of its eventual award in the form of special certificates that are now traded like stock.
Wall Street reacted with mixed signals Monday to news of Washington Mutual’s takeover of American Savings.
Washington Mutual shares soared $4.875 to close at $35 on Nasdaq. Among major California thrifts, CalFed rose 37.5 cents to $19.625, Glendale Fed was unchanged at $17.50, Ahmanson was unchanged at $24.75 and Coast Savings added 25 cents to $31.
Great Western Financial slipped 37.5 cents to $22.25 and Downey Financial added 25 cents to $20.75.
* MAIN STORY: A1
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Likely Targets?
Analysts say the time is ripe for California-based thrifts to be acquired. The industry has put behind the troubles of the 1980s, while earnings are rising due in part to the state’s economic recovery. These California thrifts are seen by analysts as the most likely for takeover:
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Total assets* Thrift (billions) Home Savings of America $50.4 Great Western Bank 41.3 California Federal Bank 14.4 Glendale Federal Bank 14.4 Coast Federal Bank 8.2 Bay View Federal Bank 2.9 Cenfed Bank 2.1
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* As of March
