Currency of Mergers

Why do corporate chieftains boast like football players after a touchdown when announcing a merger deal? "It's a unique and tremendous combination," said Kerry K. Killinger, chairman of Washington Mutual Inc., of the proposed acquisition of H.F. Ahmanson.

Unique is the wrong word. The Ahmanson deal announced Tuesday is big, and maybe poignant for fans of Southern California history, but it's only the latest in a long line of mergers and acquisitions that have changed the regional banking landscape.

It won't be the last of the mergers either. There is a great surplus of capacity in the financial service industries, meaning more banks, brokers and other institutions are looking to attract the consumer's deposit dollar, to make the mortgage or home equity loan or to give credit to small businesses.

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And there is a surplus of banks in Southern California just because the region has a vibrant business climate and a large population. The acquisitions of Southern California banking institutions are a response to this region's strength, not its weakness.

The Ahmanson deal will make one competitor bigger, and that will affect other lenders. Bank customers on balance will benefit from the deal. To see why, look at the deal, the history and the background of consolidation.

Washington Mutual, or WAMU as it's known after the letters of its ticker symbol, will grow to $150 billion in assets by acquiring Ahmanson.

The deal carries emotional meaning for Southern California because it will complete Killinger's sweep up of the once mighty regional thrift industry. Last year, WAMU won Great Western Bank in a competition with Ahmanson. It acquired American Savings two years ago and will also acquire Coast Federal Savings & Loan in the deal with Ahmanson.

Importantly, the deal makes WAMU roughly as large as Bank of America in the retail business of taking consumer deposits, making mortgage and home equity loans.

That means WAMU bypasses Wells Fargo in size, which makes Wells Fargo a target of acquirers such as NationsBank or Banc One, says analyst Donald Destino of Jefferies & Co. He's referring to major national banks that have opened offices in the rich California market but are thought to need major acquisitions to really be players in this region.

But size by itself won't guarantee that WAMU will be successful in a competitive landscape. To be successful, it will have to achieve the cost-savings of the merger by closing branches, firing employees and eliminating duplicate facilities. But then it will have to plow those savings back into marketing to customers.

That is where small banks think they will be able to compete with the new giant WAMU, by giving friendlier service to customers. Downey Savings & Loan in Newport Beach, one of the remaining S & Ls based in Southern California, has been capitalizing on defections from Ahmanson's Home Savings. "The public is upset with all these big mergers," says Maurice L. McAlister, Downey's chairman. "We're experiencing their frustration with the mergers like you wouldn't believe."

Commercial bankers such as Russell Goldsmith, president of City National Bank, which serves small businesses, says, "Our business is serving the needs of entrepreneurs, and that won't be affected by mergers of this kind."

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But such complacency could be dangerous. Ultimately, customers are attracted by lower prices, says Don M. Griffith, chairman of First Coastal Bank in El Segundo. "As WAMU cuts costs, it will be able to make loans at better rates to consumers. Nobody can sit back and say they won't be affected competitively."

The merger will directly confront a leading mortgage lender such as Countrywide Credit Industries, the nation's second-largest mortgage company--after Norwest Corp. of Minneapolis. The WAMU-Ahmanson merger results from weakness, not strength, says Angelo Mozilo, Countrywide's president. WAMU and Ahmanson "had to merge because their costs were too high to compete."

But Mozilo is aware that the consolidation of WAMU and Ahmanson will make a stronger competitor in the mortgage market. It will probably be better for the consumer, he says, because the more intense competition will tend to lower mortgage rates.

The point for the consumer, says Mozilo, is that there is a lot of money in the marketplace for mortgages. Mergers don't reduce competition.

Some bankers noted that Southern California would have been better off if Ahmanson, instead of WAMU, had been able last year to acquire Great Western Bank. "Losing another headquarters is not good for Southern California," said George Graziadio, chairman of Imperial Bank, an Inglewood-based regional business bank. He was referring to the proposed firing of 3,500 employees and closing of branches.

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But others noted that Washington Mutual's further investment into the Southern California market--in the form of shares paid out to Ahmanson shareholders and in the investments it will make to combine the two companies--would benefit the local economy. And Mozilo added that his company "is open to hire 2,000 people right now. The merger makes good employees available."

Two Giants Join Forces

* Ahmanson's fate may have been sealed with failed takeover bid.

* Recent thrift consolidations have some customers fuming.

* What's next for thrift chiefs Kerry Killinger and Charles Rinehart?

More Coverage, D2, 13

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Banking on Change

Continuing a wave of consolidation in California's banking industry, Irwindale-based H.F. Ahmanson agreed to be acquired by Seattle-based Washington Mutual for $9.9 billion. If approved, the deal would form the state's second-largest banking institution. The merger would draw to a close the history of the 109-year-old Home Savings of America, which was purchased by Ahmanson in 1947 for $162,000.

THE IMPACT

* Employees: Washington Mutual said it would slash 3,000 to 3,500 jobs and close 160 to 170 branches, mostly in Southern California.

* Consumers: Consumer advocates question whether the deal would limit lending choices and lead to higher fees and less service. However, the deal may provoke an aggressive scramble to attract consumer deposits and make home loans--a benefit for consumers.

* Industry: Analysts say the merger derby in California banking will continue, with Wells Fargo the next target. With Ahmanson, Washington Mutual would become the nation's largest mortgage lender and its seventh-largest banking institution.

THE NEW MARKET

The acquisition would make Washington Mutual California's second-largest banking institution.

BankAmerica: 20.6%

Washington Mutual*: 17%

Wells Fargo: 13.8%

Golden State Bancorp: 6.4%

Union Bank: 5.2%

Other: 37%

*Figure is for combined company of Washington Mutual and H.F. Ahmanson.

FEWER INSTITUTIONS

Number of banks and savings and loans in California:

'90: 571

'97: 370

Sources: California Bankers Assn., California Department of Financial Institutions, SNL Securities, FDIC

Researched by JENNIFER OLDHAM / Los Angeles Times

Chronology

H.F. Ahmanson & Co., an insurance company that acquired Home Savings of America in 1947, grew with Southern California, financing homes and creating equity for the masses. Highlights in the 71-year-old Ahmanson's history:

* 1927: Howard Fieldstead Ahmanson founds the company at age 22, before he graduates from USC. The company, specializing in casualty insurance, quickly becomes the state's largest underwriter.

* 1930s: The company prospers during the Depression by handling foreclosures.

* 1943: Ahmanson gains control of North American Insurance Co.

* 1947: To capitalize on a nationwide housing boom, Ahmanson purchases Home Savings of America, founded in 1889 by Walter A. Bonygne Sr. as Home Investment Building & Loan Assn.

* 1961: Ahmanson's purchase of 18 financial institutions in the 1940s and '50s, which are consolidated under the Home Savings name, helps the thrift become the first savings and loan with $1 billion in assets.

* 1965: To cushion itself against the failing mortgage market, Ahmanson shifts its mortgage emphasis from tract housing to apartment buildings.

* 1968: Howard Ahmanson has a heart attack and dies while on a trip to Belgium.

* 1974: The company acquires Stuyvesant Insurance Group from GAC Corp.

* 1981: Ahmanson purchases Bankers National Life Insurance Co. As part of an effort to expand nationwide, it begins to merge out-of-state institutions into the Home Savings network under the Savings of America name.

* 1987: Home Savings reports $27 billion in assets, becoming the largest originator of adjustable-rate mortgages.

* 1989: Charles R. Rinehart becomes chairman and chief executive of Home Savings.

* March 17, 1998: Ahmanson says it has agreed to be acquired by Washington Mutual for $9.9 billion.

Sources: Company reports, International Directory of Company Histories

Researched by JENNIFER OLDHAM / Los Angeles Times

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