After it dissolved its thrift charter and sold its branches, Bay View Capital Corp. of San Mateo, Calif., had planned a complete liquidation, but instead it wants to be a community bank again.
Now just a finance company, Bay View aims to use the tax credits it has accumulated since 1999 to make acquisitions in California, Texas, or Colorado, says its chairman, Robert B. Goldstein.
"We're looking for banks in growing metropolitan areas that could be having problems but that are inherently very profitable," said Mr. Goldstein, a noted turnaround specialist who came to Bay View in 2001.
The plan is to buy the banks at a discount and reap profits as their performance improves - particularly if Bay View ends up selling them for a premium. A number of banks have expressed an interest in selling to Bay View, and one of them may be close to a deal, Mr. Goldstein said.
This is an about-face for Bay View, whose shareholders voted in 2002 to liquidate and dissolve the company after more than two years of devastating losses. The company attributed the poor showing in those couple of years to a subsidiary that made loans to owners of fast-food restaurants, gas stations, and convenience stores.
Bay View sold $3 billion of deposits and its 57 branches to U.S. Bancorp for $429 million in 2002, and sold a factoring subsidiary to a group of investors. (It had shut down its franchise lending subsidiary in 2000, and in 2001 it sold a high-loan-to-value home equity finance subsidiary.)
It has been steadily shedding the remaining loan portfolio of the thrift, whose charter was dissolved in September 2003, and it was on track to sell the Bay View Acceptance Corp. auto finance subsidiary. But late last year the board changed its mind about complete liquidation after learning that shareholders would fare better if the company stayed in business, Mr. Goldstein said.
Accountants told the board that Bay View still had about $100 million of net operating losses that it could carry forward from posting more than $430 million of losses, starting with the last quarter of 1999 and through all of 2000 and 2001. Under federal tax laws that $100 million could be used as tax credits during any year Bay View makes money - essentially giving it tax-free income until there were no more net operating losses to carry forward on its books.
Bay View Acceptance was generating revenue of about $7 million a year, so the board decided in October 2003 to liquidate only the thrift's remaining loan portfolio and keep the auto finance company to take advantage of the remaining tax credits. In early 2004 the board decided it would be even better to make several acquisitions and potentially triple or quadruple the company's tax-free income.
"We think buying banks in growing markets would maximize the value of the tax advantages that we have," Mr. Goldstein said. "We would be able to shelter all of the revenue that the banks and the auto finance company make - which means we could conceivably make $50 million a year in tax-free earnings for several years."
He says it would take five to seven years for Bay View to use up its tax advantages if it were to buy a series of banks that could be merged into one charter. Then it would probably sell if it could reap a premium, and after that it would probably buy other underperforming community banks and start the process all over again - but without the tax advantages.
"The management group that comes along with me loves to buy banks that we can clean up and later sell," Mr. Goldstein said.
Campbell Chaney, an analyst at Sander Morris Harris in San Francisco, called Bay View's strategy "very intelligent," and said he has no doubt that its chairman and his team will succeed.
"Mr. Goldstein's track record has been excellent as a workout person who takes underperforming companies and creates opportunities for sales," Mr. Chaney said. "He has a big following among bank stock investors who have and will continue to invest in his institutions, because he's always successful."
In the late 1990s Mr. Goldstein turned around the $250 million-asset Regent Bancshares Corp. of Philadelphia, which was sold in 1998 to neighboring JeffBanks Inc. for $56 million, or 2.93 times book value. He then went to the $2 billion-asset JeffBanks, which was acquired by Hudson United Corp. of Mahwah, N.J., for $350 million, or 2.75 times book.
Soon after it hired Mr. Goldstein, Bay View raised $137.5 million and set about to get rid of bad loans, jettison money-losing businesses, and sell itself or the thrift, or at least its branches and deposits. It has accomplished these tasks and still has enough proceeds left over from the rights offering to buy community banks, its chairman says.
Bay View Acceptance, meanwhile, continues to grow. The outfit makes indirect "superprime" loans to borrowers with pristine credit who prefer extended terms up to 96 months and loan balances that exceed the wholesale value of their vehicle. It is now in 33 states (a 16-state increase in the past year) and is generating loan volume of $350 million a year. Mr. Goldstein expects the unit's loan volume and resulting income to more than double in the next several years.
