Former Security Pacific Corp. chief executive Robert H. Smith is floating a plan to raise about $700 million to buy and merge Glenfed Inc. and CalFed Inc., two ailing California thrifts. American Banker has learned.

Mr. Smith is working in partnership with William M. Isaac, a former chairman of the Federal Deposit Insurance Corp., sources said. Mr. Isaac is now managing director of the Secura Group, a Washington, D.C.-based consulting firm.

Merging Glenfeld and CalFed would create the nation's third-largest thrift company, with about $35 billion in assets.

Several Ideas Afloat

Mr. Smith's plan is one of several ideas he is said to be considering to acquire a major California thrift. Although his proposal to combine Glenfed and CalFed is only preliminary and is considered a long shot, several factors could work in his favor.

His onetime colleague John F. Kooken, former chief financial officer of Security Pacific, is now a Glenfed director. And Mr. Smith knows Glenfed from a buyout bid Security Pacific made for the thrift in 1990, a well-placed source said.

Mr. Smith, who works out of Secura's Pasadena, Calif., branch office, declined to comment. Spokesmen for CalFed and Glenfed declined to comment on possible acquisitions.

Mr. Smith, 57, recently stepped down as president and chief operating officer of BankAmerica Corp., which acquired Security Pacific last April.

He and Mr. Isaac in recent weeks have approached a number of organizations with their plan to combine Glenfed and CalFed, according to sources familiar with the proposal.

Wide-Ranging Talks

"Within the last month, they have talked to key players at the regulatory level, people at investment banking firms, and corporate sugar daddies," said a person familiar with the situation.

Mr. Smith has signed a confidentiality agreement to review the books of Glenfed, which is headquartered in Glendale. A spokesman for CalFed, which is based in Los Angeles, said his company has no such agreement with Mr. Smith.

While stressing they knew nothing specifically about Mr. Smith's plan, analysts said they thought it would be hard for him to put together a deal, given the thrifts' asset-quality problems and California's slumping economy.

"That is an awful of money to raise in this environment," said Montgomery Securities analyst Joseph A. Jolson. "This has a low probability relative to other alternatives."

It is more likely that an existing institution, such as First Interstate Bancorp or one of California's healthy thrift companies, will eventually acquire Glenfed or CalFed, Mr. Jolson said.

Analysts said any deal would depend on strong asset-quality protections for investors, including possible government guarantees.

Capital Needs

The $700 million Mr. Smith wants to raise would more than cover the capital shortfalls of the two thrifts. Federal regulators are requiring Glenfed to boost capital by about $400 million and CalFed by about $250 million.

CalFed has proposed to raise capital by converting bonds to equity. Glenfed is pinning its hopes on a federal court case that could allow it to count regulatory goodwill as capital.

In July, the U.S. Court of Claims ruled that the federal government had breached a contract when it overturned a previous agreement with Glenfed counting goodwill as capital. A government appeal has been filed.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.