Takeover fever has sparked a sharp rise in stock prices of many California thrift institutions.
From mid-May to mid-June, the shares of 20 thrifts in California enjoyed a median gain of 17.2%, according to James M. Marks, an analyst in San Francisco for Hancock Institutional Equity Services.
During the strongest three weeks of that period, "it was an extraordinary movement, with every tick up, every day," Mr. Marks said on Monday.
The biggest gainer was Coast Savings Financial, Los Angeles, up 31.4%.
Other notable gainers in this class were RedFed Bancorp Inc., of Redlands, up 26%, and Glendale Federal Bank itself, whose shares were up 20.5%
Other California thrifts with big jumps were Bay View Capital Corp., San Mateo, up 22%, Quaker City Bancorp Inc., Whittier, ahead 20.3%; and Great Western Financial Corp., Chatsworth, up 20.2%.
The stocks have cooled off from that red-hot pace in the past few days, but are still priced at a discount to thrifts nationwide. Thus, they may have room for fresh upward momentum, the analyst said.
Two Key Factors
Fueling the advance were a successful bulk sale of distressed assets by California Federal Bank and Glendale Federal and the acquisition of Sacramento Savings by First Interstate Bancorp.
The assets, mostly multifamily properties in Southern California, drew more bidders and sold at less of a discount to face value than expected.
"That forced investors to re-evaluate the stocks of thrifts who have been holding these kinds of assets," Mr. Marks said.
The acquisition of Sacramento Savings, at a price equal to 190% of the thrift's tangible book value, sent a message "that the consolidation trend will hit California with takeover prices not out of line with those in the rest of the country," he said.
In the past year, the median price in 44 purchases of thrifts with assets over $50 million has been 170% of tangible book value, Mr. Marks said. Thrifts with assets over $200 million drew slightly higher prices.
Acquisitions are understandably the driving force behind thrift prices, he said. Of the nation's 209 publicly traded thrifts with assets over $40 million, 22 institutions currently are involved in announced takeover transactions.
"It's nearly a going-out-of-business sale," he said. Among many thrifts, the managers sense they "do not have a viable franchise going forward."
Still another factor that should stir investor interest in some thrifts is a series of legal cases over the handling of goodwill, Mr. Marks said.
At issue is whether the Federal Home Loan Bank Corp. entered binding contracts with buyers of insolvent thrifts that obligated the government to recognize goodwill and other types of intangible capital.
And if "contracts" did in fact exist, are buyers in those transactions entitled to damages as a result of the 1989 passage of FIRREA, which excluded supervisory goodwill from capital.
"Close investor attention is warranted," said Mr. Marks. "A judgment against the government could result in a multi-billion dollar windfall for certain thrifts." A federal appellate court may rule later this year.
Glendale, which is bringing one of the cases, estimates its damages at $1.4 billion, or 1.9 times more than the initial goodwill of $734 million it assumed when it bought insolvent First Federal Savings & Loan Association of Broward County, For. Lauderdale, Fla., in 1981.
Victory Could Cause Upswing
If the thrifts win, their book values could be enhanced significantly, meaning their stocks suddenly would be trading at deep discounts and enjoy major upside potential.
Their common stock, said Mr. Marks, "contains an embedded option on the successful outcome" of the cases. But this apparently is not well known in the market, since their is no premium on shares of companies that would stand to benefit.
Other thrifts goodwill is a major issue for are Coast Savings, California Federal, H.F. Ahmanson & Co., Los Angeles, and New York's Anchor Bancorp.