Michigan National Corp. said on Monday that it will sell its California subsidiary, preparing the troubled company to jettison the last assets outside its home-state consumer bank.
Analysts said the planned sale of Independence One Bank of California could make a refocused Michigan National more attractive to acquirers, though Chairman and .CEO Robert Mylod insisted that shareholders have the most to gain through independence.
"The board is very strongly oriented toward keeping the company independent," Mr. Mylod said in an interview. "The bottom line is value. We think that by doing all that we've been able to do this year, we are adding value for our shareholders."
The company said it would sell its California thrift operation after reaching an agreement with the Federal Deposit Insurance Corp. to terminate a 1988 assistance pact that was to have expired after 10 years. The deal will result in a $51 million aftertax credit to third quarter earnings.
Mr. Mylod said the Farmington Hills, Mich.-based company is negotiating with several prospective buyers to acquire the California franchise, which includes six branches and an estimated $400 million in assets. A sale is expected by early 1995.
The move to dispose of non-strategic assets is the latest by Michigan National since shareholders began pressing for the sale of the $10.1 billion-asset bank in the spring. Earlier this year, the company sold its small Texas operation to two bidders and auctioned its mortgage banking operation for an estimated $125 million to Norwest Corp.
In a statement, the bank said its third quarter results would include one-time after-tax gains of $13 million for the sale of its Texas subsidiaries and $27 million for the sale of Independence One Mortgage Corp. All told, the company is expecting $91 million in non-recurring credits for the quarter.
In the second quarter, the company booked a $43 million gain after settling a tax dispute with the Internal Revenue Service over tax benefits from the assisted purchase of Independence One.
"I look at this as positioning them to buy back some stock," said Fred Cummings, banking analyst at McDonald & Co. in Cleveland.
Anthony Polini, analyst at Mabon Securities, said the moves can only bolster the book value of the franchise and further trigger speculation that the company will be bought out. "They are more clearly focused on the Michigan market now and that has to make them more attractive to acquirers," Mr. Polini said. "I hate to say they are dressing it up for sale, but that could apply."
Investors reacted favorably to the news. Michigan National's stock price closed up 0.125 at $76.378.
Mr. Mylod would not rule out a possible buyback of stock, but said no decision had been made. The only use of the excess capital that he ruled out was the funding of acquisitions.
The next test for Michigan National comes when the bank announces a charge for a cost-cutting program designed to drop the bank's efficiency ratio from the 70s to the high 50% range by the third quarter of 1995.
In June, the bank hired Tandon Capital Associates Inc. to advise it on a campaign to slash expenses by $65 million a year. Analysts have estimated the company will take a fourth-quarter charge of at least $30 million.
Mr. Mylod declined to speculate on when or how much of a charge would be necessary, but he described the savings target as a minimum. "We feel increasingly comfortable with that estimate," he said.
