In a stark illustration of the persistent weakness in the California banking market, two institutions that raised new capital through fights offerings in the past year are already back on the brink of extinction.
Guardian Bancorp, of Los Angeles, and UnionFed Financial Corp., of Brea, recently said they have hired merger and acquisition advisers to explore options anew, mere months after raising $19.7 million and $45 million, respectively, in fights offerings.
The failure of the two companies to use the equity from their offerings to stem systemic eamings problems shows why some potential acquirers are turned off to California institutions.
But it also suggests that the state could become a buyer's market, as more and more institutions choose to throw in the towel and put themselves up for sale.
Just this week another California banking company, Hawthorne Financial Corp., announced it would either do a rights offering or sell itself.
Since its rights offering in September 1993, UnionFed's stock has plunged 68% as of Monday. Guardian stock has declined 53% since its offering was completed in January.
One investment banker said that each company raised and spent its new capital within two quarters of completing its offering. "If I were a board member I would be scared, and shareholders I assume would be angry."
In fact, Smith Barney Shearson, UnionFed's second-largest institutional shareholder, dumped 1.15 million shares earlier this year, according to SNL Securities.
To date, many of the state's more than 400 community banks and thrifts have also stubbornly clung to independence, despite weak profitability and tenacious competition.
California Federal Bank and Glendale Federal Bank -- two large thrifts -- both went through more than one recapitalization in efforts to remain independent, said Charlotte A. Chamberlain of Wedbush Morgan Securities.
But the failure of Guardian and UnionFed to reverse course may signal to community banks and thrifts that it is time to sell, said an investment banker who requested anonymity.
The sluggish economy and the shrinking supply of Resolution Trust Corp. assets also could drive acquisitions of private banking institutions in California, added Joseph Morford of Keefe, Bruyette & Woods Inc.
Guardian, which used Oppenheimer & Co. to underwrite the offering, retained Sandler O'Neill & Partners to conduct a strategic review of operations.
UnionFed retained Friedman, Billings & Ramsey & Co. Keefe Bruyette and Natwest Securities underwrote the thrifts's offering, a source said.
Both UnionFed and Guardian were forced into the rights offering by mounting losses that threatened to push the companies capital reserves beneath required levels. A rights offering is an issue of new stock to current shareholders.
UnionFed's offering, completed last year, was oversubscribed and raised $45 million.
Guardian was not as successful in attracting its stockholders. The company, which has roughly $530 million in assets, announced an offering of up to $30 million in September 1993, but ended up raising only $19.7 million.
In August, Guardian fired its CEO, Howard Fletcher, who had been hired in 1993 to turn the bank around and convince investors that the company remained profitable.
As for Union Federal, its main problem, said Mr. Morford, is that it expected stronger loan growth. But the California recovery has not been that vibrant, he said.
Rights offerings are relatively uncommon in the banking industry, with perhaps two dozen in the past two or three years.
Small, struggling institutions generally are viewed as candidates for the measures, said Christopher Quackenbush, a principal with Sandler O'Neill.
But that could change, he said. In Europe, many large companies use rights offerings as a shareholder benefit, he said, like dividend reinvestment plans in the United States.
Murray Bodine, an investment banker with Hoefer & Arnett Inc. in San Francisco, an adviser to the state's community banks, said there would be few rights offerings in the future among California's banks and thrifts.
Meanwhile, Guardian, UnionFed, and Hawthorne continue to explore their strategic alternatives, which include additional rights offerings, equity issues, or sales.
One investment banker not involved in either of the deals remarked, however, that the job of the companies' investment bankers was clear: "To try to help the banks fail with dignity."
