Powerhouse banking companies are rapidly gaining share in California as buyers of last resort for failed banks, potentially setting the stage for fierce competition in the nation's most populous state.

But key players involved — including U.S. Bancorp and Wells Fargo & Co. — said they welcome the change in the competitive landscape because it comes with what they view as a notable benefit: the exit of struggling competitors that specialized in risky mortgage lending and irrational deposit pricing.

"I think it's good to have good, stable competitors in a market," John G. Stumpf, San Francisco-based Wells' chief executive officer, said at a conference Wednesday in New York. "I think that's hopeful to us, not hurtful."

Of greatest interest in the long term is the Los Angeles area because of its sheer size and the expectation of population growth in Southern California.

Unlike a state such as Ohio that is losing manufacturing jobs and population in many of its largest cities, for example, California "is a growth state," Mr. Stumpf said, and this means several strong banking companies can expand in the state when the economy improves.

And bankers also said this growth would occur at a reasonable pace. Unlike the situation during the state's overheated housing boom, leading lenders can compete on a level playing field because they will not have to contend with overleveraged competitors like Countrywide Financial Corp., Washington Mutual Inc., or Downey Financial Corp.

"In the last couple of years, the competition was so irrational," Richard K. Davis, the chairman and chief executive of U.S. Bancorp in Minneapolis, said Thursday at a conference in New York. "We weren't getting paid for risk."

This year, JPMorgan Chase & Co. bought Seattle-based Wamu's bank assets; Bank of America Corp. bought Countrywide, the big Calabasas, Calif., mortgage bank; and U.S. Bancorp acquired Downey in Newport Beach, Calif., as well as PFF Bancorp in Rancho Cucamonga. And by the end of this month Wells intends to close its deal for Wachovia Corp., the struggling Charlotte company that has branches in California. Wells' deal for Wachovia was the only one of these that did not get a government backstop for distressed assets.

B of A declined to comment; a JPMorgan Chase spokesman did not immediately return a call Thursday.

In Southern California, the largest banks, in order, are B of A, Wells, JPMorgan Chase, and now U.S. Bancorp. The four control more than half the region's deposits, according to SNL Financial.

Los Angeles County and neighboring Orange County, together, have nearly 20 million residents, the most populous two-county area in the country.

"There's room, long term, for plenty of growth for these banks, without a doubt," Timothy O'Brien, a Sandler O'Neill & Partners LP analyst who covers California banks, said in an interview Thursday. "It will take time, but Southern California will rise again."

But he and others cautioned investors not to expect a flurry of profit growth in 2009 or even the following year in California because of the housing market's precarious state. Mortgages, a key source of income for most banks doing business in California, probably won't be profitable "for several years" because delinquencies are expected to mount through 2009, John Rickmeier, the chief executive of the research firm IDC Financial Publishing in suburban Milwaukee, said in an interview Thursday.

Nationally, roughly one in 10 mortgages is delinquent, according to federal data, and Mr. Rickmeier predicted that this share will rise to one in five next year. "And it's even worse in states like California," he said.

Though Mr. Stumpf said Wednesday that low interest rates have brought some buyers back into the California housing market this quarter, he said he expects economic conditions to deteriorate further and job losses to mount, which could lengthen the drought in housing even if home prices bottom out.

Mr. Stumpf also reiterated that he anticipates absorbing about $60 billion of losses on Wachovia's home loan portfolio, including $36 billion of losses on option adjustable-rate mortgages, the type of loan that crippled Wachovia and forced it to find a buyer.

U.S. Bancorp is bracing for the worst in the near term. Mr. Davis said Thursday that he expects to report fourth-quarter chargeoffs of up to $650 million. And he said the company will build loan-loss reserves by as much as 110% of chargeoffs.

But he also said that, once the worst is over, the strong companies that survive, including his, will emerge stronger than before the downturn.

"Banking is good, and it's going to get better" after what is expected to be a dismal 2009, Mr. Davis said Thursday. "If we can get the fundamentals back" industrywide, "I think you'll see this as a business with a robust future."

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