Stocks: California Thrifts Surge on Ahmanson-Coast News

California thrift stocks soared Monday on news of H.F. Ahmanson's deal to buy Coast Savings Financial Inc.

Investors poured so much money into California thrifts that valuations of some stocks were up as much as 3.5% in afternoon trading.

The biggest gainers included Golden State Bancorp, Glendale, which rose 75 cents, to $32.75; and Golden West Financial Corp., Oakland, up $2.375, to $92.81.

PFF Bancorp, Pomona, and Provident Financial Holdings, Riverside, two smaller California thrifts, also saw their shares surge on a day when bank stocks rallied as a result of an exuberant bond market.

The Standard & Poor's bank index rose 1.5%, while the Dow Jones industrial average jumped 0.77%. The Nasdaq bank index increased 0.91%, and the S&P 500 was up 0.79%.

The Ahmanson-Coast deal, market experts say, creates scarcity value among the remaining California thrifts.

"A bank wanting to be a player in California or wanting a branch network in California is going to have to consider buying a thrift," asserted Kevin Pilot, who invests in California thrifts through his firm, Phoenix Capital Management, Carlsbad, Calif.

"It's just a matter of 'Do you buy it now so you can get fair value, or later when it gets more expensive?'" he asked, challenging the conventional wisdom that banks will not buy thrifts.

Mr. Pilot added that he expects a major East Coast bank like Chase Manhattan Corp. to eventually make a run for Washington Mutual Inc. as the race to enter the California market heats up.

"Washington Mutual is trying to grow and establish itself as a large entity or is packaging itself to be sold to a East Coast bank," said Mr. Pilot. "It's a lot easier for a bank like Chase to buy one large company at a premium, as opposed to buying a whole lot of little thrifts at a premium."

"If Chase tries to go piecemeal, other banks will see their strategy" and may make defensive moves, added Mr. Pilot.

Thrift analyst Thomas O'Donnell of Smith Barney Inc. said the surge in California thrift stocks because of long-anticipated consolidation there is just beginning.

"Consolidation is still in its early days," said Mr. O'Donnell. "There was a six-year period when there was no consolidation, because the economy was in such dire straits, so now we are in a period of catch-up."

Though Mr. O'Donnell agreed that California offers a number of strong thrifts with improving fundamentals, he warned that investors shouldn't play the takeover game.

"Many California companies are making the right moves, " said Mr. O'Donnell. "You don't want to invest solely because it is a takeout target, because some of these companies won't get bought."

Thomas R. Hain, an analyst at Lehman Brothers, said California thrift stocks are rising because consolidation is no longer hampered by the goodwill lawsuits many California thrifts have filed against the government.

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