Two major California thrifts, Glendale Federal Bank and Cal Fed Bancorp, considered merging earlier this year before Cal Fed scotched the deal because it believes it could soon get a better offer from elsewhere.

Sources with direct knowledge of the situation said Glenfed initiated the talks because it believed the surviving institution - which would have had $29 billion of assets - would be more profitable, and more attractive to an out-of-state acquirer, than either company would be on its own.

Many analysts and institutional investors agree that out-of-state banks interested in entering California would prefer to buy a company bigger than either Glenfed or Cal Fed in order to have enough market share to compete with BankAmerica Corp. and Wells Fargo & Co.

But Cal Fed was uncomfortable with some features of Glenfed's balance sheet, including its higher concentration of risky multifamily apartment and commercial loans, and its greater interest rate exposure.

Cal Fed and Glenfed spokespeople said their companies could not comment on the reports. But Cal Fed officials have said publicly that they have reviewed 31 acquisitions in the past year - both small branch acquisitions and larger mergers.

According to sources, Glenfed used the investment banking firm CS First Boston to bring the merger overture to Cal Fed.

As a sign of his serious intentions, Glenfed chairman Stephen J. Trafton offered to step down and let Cal Fed chief executive Edward G. Harshfield run the combined institution, according to sources.

Glenfed proposed that ownership of the combined company be split equally between the two thrifts' shareholders, sources said. The split, they said, would have been such that Glenfed shareholders would get new shares roughly equal to the value of their current holdings, while Cal Fed shareholders would have gotten a small premium.

The surviving company would have had either the Glenfed name, or a new name, sources said.

Cost savings were estimated by the sources at about $75 million within a year, mostly from consolidations of duplicate back-office and data processing operations, and headquarters and administrative offices.

Both rank among the nation's 10 biggest thrifts. Glenfed, based in Glendale, has assets of $14.6 billion, while Los Angeles-based Cal Fed has assets of $14.3 billion. Together, they would have formed the country's fourth-largest thrift.

"There was enough juice that it would have worked out nicely as an MOE (merger of equals)," said one source with direct knowledge of the talks. Analysts and investors have rated a merger between Cal Fed and Glenfed as one of the most likely in the industry. Indeed, the two came close to consummating a deal in 1989 before disagreements between managements killed the merger at the last minute.

But in the most recent talks Cal Fed officials decided other mergers could be done in the next 18 months that would better for their shareholders, source said. Possible merger partners include other California thrifts or out-of-state banks, observers noted.

Investors and analysts had mixed reactions to reports that Cal Fed had nixed a Glenfed offer. "Assuming you really did get rid of one back office, and did substantial reductions of branches and overlaps, I think it (a merger) would be fabulous," said Charlotte Chamberlain, an analyst with Wedbush Morgan Securities.

But Joseph Jolson, a thrift analyst with Montgomery Securities, said a merger could be bad for shareholders of both thrifts if it integration process delayed the acquisition of either company by an out-of-state bank for a higher price.

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