Many say Cenfed Bank has sold itself cheap to Glendale Federal. Cenfed's chief executive officer says he is lucky to have a deal.

"We felt like there was a shrinking universe of acquirers and now was the right time for us," said D. Tad Lowrey, CEO of the $2.3 billion-asset Pasadena thrift company, in a telephone interview from his office.

"When everybody wakes up one day and says, 'Are these thrift franchises real? And what are they worth?' we didn't want to be one of the ones they were asking that question of," Mr. Lowrey said.

There are at least 50 thrifts in California smaller than Cenfed. Many are public with shareholders who expect a sale at a rich premium. If Cenfed is any guide, some may be disappointed.

In fact the 1.8-times-book price is closer to the norm for California thrift deals than the headline-grabbing 2.49 times book that Washington Mutual paid in July for Chatsworth-based Great Western Financial.

Mr. Lowrey, 44, is known for his candor about the slender profits and declining fortunes of the thrift industry, and an earnest commitment to maximizing shareholder returns.

So it's no surprise that when Cenfed's board concluded late last year that the thrift wouldn't make a 15% return on equity soon, it chose to sell. Returns averaged about 10% from 1992 to 1996, and hit a high of 13.05% in the second quarter.

Mr. Lowrey described the sale of Cenfed as swift, even urgent. The board wanted a deal quickly, he said, even if that meant a modest price.

With 18 branches and $1.5 billion of deposits, mostly CDs, Cenfed wasn't likely to be bought out by the really big fish in California, such as Seattle-based Washington Mutual Inc., Mr. Lowrey said.

Meanwhile, the natural buyers of Cenfed-sized thrifts-second-tier players such as Golden State (the holding company for Glenfed), Coast Savings Financial Inc., and California Federal Bank, are themselves targets of Washington Mutual and other big acquirers, such as H.F. Ahmanson & Co.

That creates a small and shrinking exit hatch for smaller thrifts, Mr. Lowrey said, and Cenfed wanted to be sure it could squeeze through. "We'd rather be early than late," he said.

Cenfed shareholders will get 1.2 Glenfed shares for each Cenfed share. When it was announced Monday, the deal was worth $210 million or 1.8 times Cenfed's book value-only a slim premium to Cenfed's recent stock price of roughly $34.

When the deal was announced, Mr. Lowrey's 46,229 shares in Cenfed were worth $1.59 million. Of course, as Mr. Lowrey and others point out, Cenfed's shareholders can expect to "double-dip," or earn a second premium if or when Glenfed sells out to a bigger institution.

Not everyone is as bearish as Mr. Lowrey on prospects for small thrifts.

Gregory A. Mitchell, senior vice president at Hovde Financial, a Walnut Creek, Calif.-based investment bank, predicts even small thrifts will be snapped up as California's top players-Bank of America, Wells Fargo, and possibly, Washington Mutual Inc. - jockey for market share.

Campbell K. Chaney of Sandler O'Neill & Partners, San Francisco, agreed that even a small thrift may be attractive to a large player, if the target has strong deposit share in a local market. Thus Cenfed, with 12% of Pasadena's deposits-second only to Bank of America's share-was tempting to Glenfed, which couldn't possibly have garnered such a large local share on its own, he said.

But Mr. Mitchell conceded that to interest a big player, small thrifts must be bank-like-rich in checking accounts and high-yielding loans.

"There are a lot of institutions that are on the block because they are finding it increasingly difficult" to diversify out of home loans and CDs, he said.

Last year Cenfed cut back sharply on home loan investment-its primary business for most of its 70-plus years-because it said it just couldn't make money at it.

It had branched out into Small Business Administration loans, but, on Monday, Mr. Lowrey said Cenfed found itself hard-pressed to profit in that market as well. Big banks and thrifts competed for small-business customers with lower prices, better technology, and a wider array of products, he said.

Mr. Lowrey said he wished Cenfed could have had more time to profitably diversify on its own. "I still think we could have," he said.

Running Cenfed has been "very difficult," he said. "It's like making steel or something. You have to go through fire to become hardened."

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.