Abandoning its ambitious U.S. expansion plans, Canada's troubled Royal Trust Ltd. announced last week that it is holding talks to sell its Seattle-based thrift unit.
The company did not identify possible buyers for its Pacific First Bank. But industry sources said Norwest Corp. and First Bank System Inc., both based in Minneapolis, as well as Seattle-based Washington Mutual Savings Bank were among those who have discussed a purchase.
Officials at Norwest, First Bank, and Washington Mutual declined to comment.
No. 2 in Region
Pacific First has $6.9 billion in assets and 133 retail branches and mortgage offices in Washington, Oregon, and California. It is the second-largest thrift in the Pacific Northwest.
Since the thrift has operations in three states, a sale could involve more than one buyer, analysts said.
For example, Washington Mutual is anxious to expand in Oregon and might find Pacific First's 70 branches there especially attractive.
Toronto-based Royal said it is weighing the sale of Pacific First Bank as part of a three-point plan to counter worldwide asset quality problems and refocus its business in Canada.
Proceeds from the sale of Pacific First would bolster Royal Trust's capital and be reinvested in Canadian trust and asset management businesses, the company said.
High Hopes
For Royal Trust, the decision to put Pacific First on the block represents a retreat from its widely trumpeted plan to build a superregional consumer bank in the western U.S.
When they bought Pacific First three years ago, Royal Trust officials predicted U.S. operations could grow to $25 billion or more in assets by the mid-1990s.
Pacific First president and chief executive John C. Dean said a deal hinges on Royal Trust getting an adequate price for the thrift.
"At a minimum, Royal Trust expects to get out its full investment," he said.
Royal Trust bought Pacific First for $212 million in 1989. It later paid $26 million and injected another $47 million in capital to a acquire a failed California thrift, which it merged into Pacific First. Additional cash infusions and other support have brought Royal Trust's outlay for Pacific First to well over $500 million.
Pacific First has a tangible book value of about $465 million.
Given the thrift's extensive loan problems, analysts and investment bankers are generally skeptical that Royal Trust will be able to recover its investment.
But it would be difficult for the Canadian company not to go through with a sale after publicly touting such a deal as a key part of the company's turnaround plan.
Pacific First has performed poorly under Royal Trust, primarily because of deteriorating credit quality.
Nonperforming assets totaled $349.7 million at the end of the second quarter, or about 5% of total assets. Most of the problem assets are in the thrift's $413 million construction portfolio or its approximately $300 million long-term California commercial real estate portfolio.
In the second quarter, Pacific First reported a loss of $661,000, leaving it with net income of $24.1 million for the first half of 1992.
