Home Savings Makes $70-Billion Pledge

Building community support for its hostile takeover bid for Great Western, Home Savings of America on Thursday pledged $70 billion in loans to lower-income and minority borrowers over 10 years, if the merger goes through.

Home Savings said it will commit to about half of that even if it fails in its bid to acquire Great Western, which has signed an agreement for a friendly merger with Washington Mutual of Seattle.

Home Savings’ community reinvestment commitment is the largest ever proposed by a U.S. financial institution, outstripping the $45-billion pledged by Wells Fargo in late 1995 during its successful takeover fight for First Interstate and a $12-billion commitment made by Bank of America several months before it merged with Security Pacific in early 1992.

Lenders have found that these public commitments can help them win important community backing for mergers, which often entail thousands of layoffs and hundreds of branch closures.

Charles Rinehart, chairman of H.F. Ahmanson & Co., which owns Home Savings, said the nation’s largest thrift is not making the pledge to avoid confrontation during the regulatory approval process.

“We are making this commitment because it’s good business,” Rinehart said in a presentation at a Home Savings branch in South-Central Los Angeles, which was rebuilt after being torched during the 1992 riots. Representatives from numerous civil rights, religious and other community-based organizations also were on hand and hailed the move.

Home Savings’ commitment also calls for annual charitable contributions equal to at least 2% of after-tax income, of which 80% will go to underserved communities.

“We are ecstatic with this kind of commitment,” said David Glover, executive director of the Oakland Citizens Committee for Urban Renewal.

Rinehart’s pledge came as Home Savings and Washington Mutual continued their battle to win over shareholders, who will ultimately decide which thrift acquires Great Western. Based on Thursday’s closing stock prices, Ahmanson’s offer was valued at $47.40 per share, or $6.75 billion, and Washington Mutual’s at $45.45 per share, or $6.47 billion.

Financial institutions are not required to make a public commitment on lending in lower-income areas, although they are required to make such loans and are rated by regulators under the Community Reinvestment Act.

Home Savings, like many major California thrifts, has historically enjoyed a strong record of lending to minorities and lower-income borrowers in the inner city. Its latest CRA rating is “outstanding,” as is Great Western’s and Washington Mutual’s.

Last year, Home Savings made $371 million single-family mortgages in lower-income areas and $428 million such loans to minorities, with some overlap between the two.

Nonetheless, last summer Home Savings was criticized by the California Reinvestment Committee, a coalition of 170 organizations, after the thrift stopped making construction loans for apartments. At about the same time, Home Savings acquired 61 First Interstate branches and was moving further toward operating as a bank. Since then, it has been in discussions with the California Reinvestment Committee and the Greenlining Institute. Together they finalized the $70-billion pledge this week.

The commitment includes:

* $45 billion in financing for single-family houses for minorities and borrowers in low- and moderate-income areas.

* $12 billion in various consumer loan products to minorities and individuals in those areas.

* $10 billion in small-business loans, of which 75% would be for less than $50,000 and 30% would be targeted to minorities.

* $3.5 billion for financing apartments, with priority given to nonprofit housing developers.

Bob Gnaizda, general counsel at the Greenlining Institute, a nonprofit group based in San Francisco, said that based on other banks’ track records, he believes Home Savings would be able to meet its commitment, probably well within 10 years.

“Usually these goals, as big as they sound, underestimate what a financial institution can do once they focus on these markets,” said Alan Fisher, executive director at the California Reinvestment Committee.

Home Savings said it will intensify its marketing, advertising and consumer education programs in minority and underserved communities under the program.

John Gamboa, executive director of the Greenlining Institute, said he and others have tried to hold discussions with Washington Mutual but that executives there have not been responsive. Bill Ehrlich, a Washington Mutual spokesman, said Thursday that his company plans to make a public commitment after meeting with community groups.

On Thursday, Ahmanson shares eased 12.5 cents to $39.50 on the New York Stock Exchange, while Great Western slipped 12.5 cents to $44.25. Washington Mutual was unchanged at $50.50 on Nasdaq.