SAN FRANCISCO -- Just weeks after he successfully the recapitalization of Glendale Federal Bank, chairman and chief executive Stephen J. Trafton is eyeing another long shot: the takeover of crosstown rival California Federal Bank.

The hard-driving Mr. Trafton has quietly begun floating the idea to investors and investment bankers in an effort to gauge whether financing could be obtained for a deal to unite the two financially troubled thrifts, people familiar with the plan said.

"Strategically it would make sense," said a partner in a money management firm that investigated in Glendale's recapitalization. The money manager, who asked not to be identified, confirmed that he had been approached by Mr. Trafton about helping to finance the acquisition of California Federal.

Overlapping Markets

In his pitch to potential investors, Glendale Federal's chief stressed that the two thrifts have overlapping markets in recession-plagued Southern California and could achieve significant cost savings through a merger, the money manager said.

It is not clear whether Mr. Trafton has yet proposed a merger to anyone associated with California Federal. His idea of combining the nation's fourth- and seventh-largest thrifts is at an exploratory stage and has not been worked up as a formal offer, said several sources from organizations independent of either institution.

Mr. Trafton could not be reached for comment. A spokesman for Glendale Federal declined to comment on a possible merger, stressing that Mr. Trafton is focused on returning the thrift to profitability. Los Angeles-based California Federal also would not comment.

A merger of Glendale Federal and California Federal would create the nation's third-largest thrift, with about $33 billion of assets and strong branch banking franchises in California, Florida, and Washington State.

The idea of combining the two has surfaced repeatedly in recent years. Four years ago, the two thrifts nearly agreed to merge, but backed off because of disagreements over management issues, people familiar with the conversations said.

Analysts said they were skeptical about such a combination today. Both institutions have lost money at a rapid clip, with Glendale Federal posting a first-half profit only because of an extraordinary gain. Both continue to be saddled with heavy loads of problem assets. And Southern California, their main market, remains deeply depressed.

Nor is it certain that regulators would permit two financially weak institutions to join together.

"I would be hard pressed to understand a merger," said Salomon Brothers analyst Bruce W. Harting. "As a mandatory element, you would want to get [credit quality under] some sort of control."

But investment bankers familiar with the plan said it would be a mistake to write off Mr. Trafton, who has become known for his singleminded devotion to achieving apparently impossible goals.

Selling some $450 million in stock two months ago with a regulatory gun to Glendale Federal's head "was the capital-raising accomplishment of the century," said one investment banker. Acquiring California Federal "is not such an impossible task."

Said Campbell K. Chaney, a San Francisco-based analyst with Dakin Securities: "The one thing that makes this possible is [Mr. Trafton's] access to capital."

One factor that was said to have spurred Mr. Trafton was a management vacuum at California Federal. The thrift had been without a permanent chief since July when the board of directors ousted former chairman Jerry St. Dennis.

With the thrift's top jobs held by interim executives, a group of major investors vociferously demanded a near-term sale of the thrift.

Strategic Adviser Hired

Last week, however, veteran banker Edward G. Harshfield took over as president and chief executive. Meanwhile, California Federal hired the investment banking firm Smith Barney Shearson Inc. to serve as strategic adviser.

Analysts said it is unlikely any deal would be struck until the new CEO and the new investment bank have had time to carry out detailed reviews of the thrift's strategic options, a process that could take many months.

Nevertheless, the investor clamor for a sale has not died down. In a conference call on Monday after California Federal's announcement of a $56.8 million third-quarter loss, several major investors badgered Mr. Harshfield about a sale, according to several participants. Altar-Bound? Glendale California Federal FederalHeadquarters Glendale, Los Calif. AngelesAssets inbillions $17.9 $15.9Rank amongthrifts 4 7Net incomein millions $17.2 $35.0 lossROA 0.20% -0.43%Core capitalratio 4.91%* 5.17%Nonperformingloans as % oftotal loans 7.57% 10.76%Net income and ROA for first half, otherdata as of June 30.(*)Pro forma figure reflectingrecapitalization completed on Sept. 17Source: Ferguson & Co.

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