SAN FRANCISCO - Two of California's biggest banking companies recently announced separate deals aimed at changing their mix of loans and deposits and boosting their business.
Glendale Federal Bank, the country's sixth-largest thrift with $15.7 billion of assets, said Monday it had signed a definitive agreement to buy the lion's share of deposits and performing loans held by Union Federal Bank, a troubled thrift in Brea, Calif.
Meanwhile, $5.1 billion-asset Sumitomo Bank of California, based here, announced plans to sell $500 million of bad loans and foreclosed real estate by June 30, leading to a loss of $150 million for the quarter, its largest ever.
Officials of both companies said the moves will make their institutions stronger.
"The proposed transaction with Union Federal will enhance the value of our California franchise," said Glenfed chief executive Stephen J. Trafton.
As part of the deal, which is expected to close in 60 days, 13 of Union Federal's 14 branches and a total of $820 million of deposits will be transferred to Glenfed.
These branches will boost Glenfed's presence in Orange County and the San Fernando Valley. Glenfed also will acquire about $200 million of performing loans.
Initially, Glenfed is paying $6.6 million for the branches, representing an extremely attractive ratio of 0.8% of the deposits. Most California branches are selling for 2.5% to 4% of deposits, said Campbell K. Chaney, a stock analyst with Rodman & Renshaw Inc.
But after a contingent payment clause is figured in, which could lead to extra payments of $6.5 million, and mark-to-market accounting also is included, the purchase price would be closer to the going rate for branches, Mr. Chaney added.
Even so, Mr. Chaney said he expects the purchase to boost Glenfed's per- share earnings 5 cents, to 95 cents, in its fiscal 1996 that starts in July.
Mr. Chaney said the acquisition will allow Glendale Federal to retire $300 million of high-cost debt that it now needs to fund loans. This, combined with the attractive spread on the deposits and assets being acquired, should boost Glendale Federal's net interest margin by 5 to 10 basis points.
For Union Federal, the deal could be a lifesaver. The Office of Thrift Supervision had given the thrift until June 30 to become adequately capitalized or risk seizure.
As a result, the institution is going through a series of asset sales, in addition to the Glendale deal, that are expected to leave it with $35 million of assets and one branch in downtown Los Angeles. At its height before the recent recession in California, Union Federal had more than $2.5 billion of assets.
Kyle Tatsumoto, vice president and corporate secretary of Sumitomo Bank of California, said his institution's asset sale should put Sumitomo's lending problems behind it.
With the sale, Sumitomo Bank of California is also benefiting from its link to Japan's Sumitomo Bank Ltd., which owns a controlling interest in it.
The parent bank, one of the world's largest financial institutions, plans to buy up to $180 million of Sumitomo Bank of California's stock. The transaction will give Sumitomo California enough capital to compensate for the loss and maintain its capital ratios, Mr. Tatsumoto said.