Citigroup to Buy Parent of Cal Fed


Citigroup Inc. agreed Tuesday to buy the parent of San Francisco-based savings and loan California Federal Bank for $5.8 billion, giving it 1.5 million new customers and ownership of a major California branch-banking network.

Citigroup’s $40.10-a-share cash and stock deal to acquire Cal Fed parent Golden State Bancorp Inc. would give it 352 additional branches, mostly in California, and $54 billion in assets. The deal would almost double the number of New York-based Citigroup’s U.S. branches and combine the nation’s largest financial institution with the nation’s third-largest thrift.

“This gives Citigroup a 350-branch footprint in the sixth-largest economy in the world,” said Richard Eckert, research analyst with Wedbush Morgan Securities in Los Angeles. “It says if you want to be a major U.S. player, you need to have a presence [in California].”


Citigroup has just 82 branches in California and Nevada. If the deal closes, Citigroup’s deposit market share in California will jump from 1.6%--10th in the state among banks and thrifts--to about 6%.

“The acquisition of Golden State marks an important step in our efforts to increase Citigroup’s retail distribution franchise in the U.S., and in particular significantly expand the scope and breadth of our services in California,” Sanford I. Weill, chief executive of Citigroup, said in a statement.

Branch closings and layoffs among Cal Fed’s 8,800 employees are expected to be minimal because there isn’t much overlap between the two institutions, analysts said. Cal Fed branches probably will be renamed to Citigroup’s consumer banking brand, Citibank.

The deal is expected to make Citigroup, which also owns brokerage Salomon Smith Barney and insurance operations, a major player in the mortgage business in Southern California, because Cal Fed is one of the top 10 mortgage servicers in the U.S. and one of the top 20 mortgage originators.

Cal Fed is the nation’s third- largest thrift behind Washington Mutual Inc. and Oakland-based savings and loan Golden West Financial Corp. Cal Fed has made gains transforming itself from a thrift to a solid retail banking operation, analysts said.

“Look what Citigroup got--the last independent and cost-effective branch system in the state,” said Mark Agah, analyst for RBC Capital Markets in San Francisco. “[Wells Fargo & Co. and Bank of America Corp.] are going to be looking over their shoulders. And no offense to WaMu [Washington Mutual], but they aren’t Citigroup.”


By increasing its presence in California, Citigroup also would expand its access to the increasingly lucrative Latino market, said Robert B. Willumstad, president of Citigroup and chairman and chief executive of the firm’s consumer unit. That’s important, because last year Citigroup bought Grupo Financiero Banamex, Mexico’s second-largest bank.

If approved by regulators, the deal also will allow Citigroup to cross-sell many of its banking products such as insurance to California’s banking consumers, many of them with various credit cards, home equity lines and investments.

Under terms of the deal, Citigroup will pay about $16.40 in cash and 0.5234 of a share of its stock for each share of Golden State, a package worth $40.10 a share total at Citigroup’s current stock price.

That’s a 10% premium to Golden State’s Tuesday closing price of $36.50 on the New York Stock Exchange, which was a 52-week high.

Golden State’s stock has risen more than 12% since May 10, and is up almost 40% this year.

The deal was announced after the stock market closed. In after-hours trading, Citigroup shares fell to $44.35 after closing at $45.26, down 59 cents on the NYSE. Golden State shares rose to $38.81 after hours, after gaining 66 cents in the regular session.

A sale of Cal Fed has been expected for some time. Because the thrift is owned by corporate raider Ron Perelman, known for building and flipping bank franchises in Texas during the late 1980s, Cal Fed has been rumored as a takeover target for the last several years.


Perelman and Cal Fed Chairman Gerald J. Ford own about 45% of Golden State. The pair began investing in California in 1994 and they bought Cal Fed in 1997. The next year they closed a $1.8-billion merger with rival Glendale Federal Bank, creating the nation’s No. 2 thrift.

“This deal was the natural cumulation of Perelman and Ford’s roll-up strategy,” analyst Eckert said.

Under terms of the deal, they are selling Cal Fed for “less than trophy multiples,” analysts said. The sale price is about 11.4 times this year’s earnings, below the 12 times to 13 times earnings other thrifts have sold for, analysts said.

“Citigroup got a great deal,” said financial analyst Charlotte Chamberlain of Jefferies & Co. in Los Angeles.

Although subject to regulatory approval, the deal is expected to close in the last quarter of this year.