Westcorp Is in Talks for Possible Sale

Westcorp Inc., an Irvine-based auto lender whose proposed restructuring has been delayed by regulators, said Tuesday that it was in talks for a possible sale.

Investors drove Westcorp shares up $7.16, or 12%, to $64.51, on speculation that Wachovia Corp. or another large bank would acquire the company.

Shares in WFS Financial Inc., a separately traded Westcorp subsidiary that works with a wide network of auto dealers, jumped $9.42, or 16%, to $69.30 on Tuesday.

One of the larger independent auto-lending outfits, WFS finances mainly used-car purchases. It says it originated $6.6 billion in auto loans last year, or 1.3% of the $500-billion total for the industry.

Through another subsidiary, Western Financial Bank, Westcorp owns 84% of WFS. Westcorp announced in May 2004 that it would buy back the 16% of WFS that is publicly traded and combine WFS with the bank. As part of the reorganization, Western Financial was to trade its federal savings and loan charter for a state commercial bank charter.

That shift would make the Federal Reserve the main regulator of Westcorp, but the Fed has had reservations over Westcorp’s application to become a bank holding company, regulatory filings show.

The delays apparently have tried the patience of Westcorp’s chief executive, 67-year-old billionaire Ernest S. Rady, said Dennis Bryan, a portfolio manager at First Pacific Advisors Inc. in Los Angeles. First Pacific is the largest of WFS’ public shareholders with about 1 million shares.

A Westcorp spokeswoman said Rady and the company would have no comment beyond a brief statement confirming the discussions.

Bryan said he believed that Rady, who owns 53% of Westcorp, wanted to create a cleanly organized single company before selling it. But Rady may not be willing to wait any longer because big banks, after racing to consolidate and enjoying a mortgage boom that stayed in high gear longer than expected, are now looking to credit-card and auto-lending businesses to accelerate earnings, Bryan said.

Bank of America Corp., for example, agreed last month to buy as much as $55 billion in car and truck loans from General Motors Corp. over five years.

The Wall Street Journal reported Tuesday that Wachovia was a suitor of Westcorp. Wachovia declined to comment. Bryan said Wells Fargo & Co. in San Francisco was another potential acquirer.

In a statement, Westcorp said its reorganization was “taking longer than originally expected” and confirmed that it was in discussions about “a possible business combination.”

Westcorp spokeswoman Caren Roberson declined to describe the concerns expressed by the Fed, referring a reporter to the company’s filings with the Securities and Exchange Commission.

In its annual report to shareholders, WFS Financial said it classified 80% of its customers as “prime” borrowers unlikely to default. It noted, however, that others had different definitions. It said many of its borrowers possessed one or more “negative characteristics,” such as recent bankruptcies or payment delinquencies, that are “deemed to be sub-prime ... for regulatory purposes.”

Analysts said the Fed appeared loath to take over supervision of a business with such concentrated risks, but Bryan said Westcorp had a “very disciplined approach” to lending, with “no real junk.”

Bloomberg News was used in compiling this report.