BankAmerica Denies Deal Is Foundering
SAN FRANCISCO -- BankAmerica Corp. and Security Pacific Corp. on Friday moved to squelch reports that their pending merger was in trouble or that the pricing might be changed.
In identically worded statements, the companies said they are moving "with all deliberate speed" to complete the merger, which is expected to close early next year.
Rumors of Loan Problems
The companies issued the statements in response to rumors that BankAmerica had found more problem loans than expected during a review of Security Pacific's books.
The banking giants did not comment on Security Pacific's credit quality. Analysts said they understood that the company's problem loans are slightly higher than expected, but within acceptable ranges.
"Credit quality problems are not even close to being a deal breaker," said Thomas K. Brown, analyst with Donaldson, Lufkin & Jenrette Securities Corp.
In late afternoon trading, BankAmerica was up 12.5 cents, to $40, and Security Pacific was up 75 cents, to $32. Reports that the merger would possibly be repriced were based on misinterpretations as word of Security Pacific's credit problems leaked out of the two banks, analysts said.
Salem Downgrades Security
The perception that the deal might be in trouble was further fueled Friday when George M. Salem, the bearish analyst at Prudential Securities Inc., downgraded his rating on Security Pacific to sell from hold.
But Mr. Salem said his action was based on his belief that the share prices of both banking companies will fall because of California's real estate slump. The odds that the deal will collapse or be repriced are only one in 10, he estimated.
In preparation for the merger, BankAmerica is carrying out a painstaking review of Security Pacific's loan portfolio. At the time of the original merger announcement, the two companies said Security Pacific would set aside $1 billion in a special reserve before the deal closed.
Special Reserve May Rise
Analysts who have talked with the two companies now expect that Security Pacific will have to add a slightly larger special reserve before the deal closes, perhaps as much as $1.2 billion. But they characterized the difference as marginal.
"I don't think it is material to the deal," said Lawrence R. Vitale, an analyst with Kemper Securities.
Mr. Brown and Mr. Vitale said Security Pacific originally told them that the special reserve would be added in the third and fourth quarters of this year rather than in one piece at the time of closing.
Such actions would result in substantial losses over the next two quarters, but could allow the company to take tax offsets that BankAmerica could use after the merger.
In a separate statement issued on Friday, Security Pacific denied it would add the special reserve in the third or fourth quarter.