American Savings Sold to Seattle Thrift
American Savings Bank, the Irvine-based financial institution created from the ruins of the spectacular 1988 collapse of the nation’s largest savings and loan, said Monday it has agreed to be acquired by a Seattle-based thrift.
The proposed acquisition by Washington Mutual, in a stock deal worth $1.4 billion, heralds what some experts see as a surge of purchases or mergers of California-based thrifts. The state’s strong economic recovery and other factors are helping to make these S&Ls; highly attractive.
The deal also would allow the federal government to recoup at least some of the huge $5.4-billion cost of rescuing American Savings, whose failure was a key development in events that ultimately led to the government’s massive S&L; bailout.
The deal caps a remarkable comeback for an institution first patched together in the mid-1950s by Southern California entrepreneur S. Mark Taper, but then nearly run into the ground by financier Charles W. Knapp.
Even before the actions of Charles H. Keating Jr. and other highflying executives became synonymous with the thrift crisis, American Savings was the embodiment of an S&L; that had abandoned its traditional roots of making traditional mortgages and begun making high-risk loans.
Since its costly failure, the thrift has been revived and returned to financial health under the ownership of Texas billionaire Robert M. Bass, who acquired the institution with the aid of a huge government subsidy.
The proposed acquisition brought praise from Wall Street as well as the government and lawmakers.
Under terms of the agreement, the government will get about $490 million of its bailout costs reimbursed by selling the Washington Mutual stock it will get from the deal. Altogether, the government spent $160.1 billion to clean up the thrift debacle. With interest, the cost to taxpayers will be $480 billion, a government report stated last week.
“This [deal] is good news for the taxpayer,” Rep. Jim Leach (R-Iowa), chairman of the House Banking Committee, said in a statement. “This is a very good deal for the government as well as the industry.”
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The proposed deal is expected to double the size of Washington Mutual and make it the nation’s third-largest savings and loan.
The Seattle thrift company, with $22.3 billion in loans and other assets, has long made it known that it was hunting for a large California institution.
“In terms of acquisitions, we believe California banks and thrifts are going through a consolidation. We’re interested in both,” said Kerry K. Killinger, Washington Mutual’s chairman.
He said the company decided to move into California because of its size and growing market.
American, with 158 branches and 62 loan offices, is California’s second-largest provider of home loans. It also has become the darling of consumer groups, which have praised it for its lending to minority and low-income neighborhoods.
The transaction also is seen by some analysts as the opening salvo in what could be a rush for California’s biggest thrifts.
“You’re going to see out-of-state institutions take another look at the state because prices will be higher a year from now, and higher still in two years,” said analyst Thomas O’Donnell at Smith Barney in New York.
Home Savings of America, California Federal Bank and Glendale Federal Bank are among the biggest California thrifts mentioned as possible takeover targets.
The fact that California S&Ls; are seen as attractive represents a sharp turnaround for the industry, which had been rocked by massive troubles in the 1980s--starting with the woes of American Savings.
The thrift had been transformed from an insignificant company to a large mortgage lender by entrepreneur Taper. It thrived during the late 1950s and the 1960s as a home-building boom in Southern California fueled the need for more construction loans and home mortgages.
But in 1983 the elderly Taper sold his company to Financial Corp. of America, a Stockton-based S&L; led by Knapp, a former investment banker. Knapp turned the thrift into one of the nation’s highest-flying institutions, a firm that epitomized the excesses of the 1980s.
Knapp was forced out by government regulators--who considered his practices unsound--and was replaced by William J. Popejoy, who later became chief executive of Orange County after the county’s bankruptcy. Popejoy labored for four years as American Savings’ chief executive in the 1980s before the thrift failed.
The Popejoy years were marked by major financial turmoil--including a $6-billion run on deposits in 1984. American failed after absorbing heavy losses on real estate development loans made while Knapp was in charge.
The government stepped in with a bailout that included selling American to Bass, who put up $350 million and received a generous package of tax breaks as part of the deal.
Bass brought in Mario J. Antoci, who came up through the ranks of Home Savings of America, to restore confidence in the company as the new chairman and chief executive. By 1989, Antoci said, the company was in the black.
“American Savings was a real phoenix--it rose from the ashes,” said Barry Rubin, a bank consultant in Santa Monica who worked at the thrift in the late 1950s with Taper.
“It looks very positive,” Popejoy said Monday. “It’s not being swallowed by some huge financial firm. It has really weathered a tough time and come into its own in the 1990s.”
Under terms of the deal announced Monday, Bass would become Washington Mutual’s single largest shareholder. The acquisition is expected to be completed later this year after approval from regulators and Washington Mutual shareholders.
* JUST THE START?
California’s major thrifts are prime targets for takeover. D1
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After the Merger
Impact of the $1.4-billion merger of American Savings and Washington Mutual:
WASHINGTON MUTUAL
* Ranking: Becomes the nation’s third-largest with 500 branches and more than $42 billion in assets.
* Headquarters: Remains in Seattle.
* Market: Expands from five to seven states.
AMERICAN SAVINGS
* Branch closures: None expected at this time.
* Headquarters: Will remain in Irvine and Stockton, Calif.
* Layoffs: Undetermined, but most American Savings employees will be offered positions with Washington Mutual. Eligible employees who are laid off will receive severance packages.
Source: Times reports
