Mellon Seen as Front-Runner To Buy Perpetual Savings
WASHINGTON - Thrift regulators said Thursday that Mellon Bank Corp. has emerged as the leading contender to acquire Perpetual Savings Bank, the largest thrift in the Washington area.
If it closes the deal, Mellon would expand its mid-Atlantic banking network to become one of the top financial institutions in the Washington area. It already owns a $300 million-asset subsidiary based in Rockville, Md., and Virginia-based Perpetual has $3.7 billion in assets and 61 offices.
Perpetual was primed for a takeover on Wednesday when the Office of Thrift Supervision rejected its plan to rebuild capital. Perpetual was placed into the accelerated resolution program, through which regulators try to sell troubled institutions before they fail and become wards of the government.
Although institutions other than Mellon were said to have expressed an interest in Perpetual, a senior official at the Office of Thrift Supervision said that Mellon "is the bank that has indicated the strongest interest."
In a statement issued from corporate headquarters in Pittsburgh, the $28.7 billion-asset Mellon confirmed that it is performing due diligence and "has indicated its interest in making an acquisition proposal depending on the outcome" of the review.
Perpetual, which got caught up in the capital region's real estate downturn and saw its assets shrink by $1 billion since year-end 1990, also acknowledged that it had entered discussions with Mellon "and other interested, strong financial institutions." Perpetual added that there "is no assurance, however, that a transaction will be consummated."
The OTS official, who briefed reporters on the condition that he not be identified, said Mellon "has expressed a keen interest in the acquisition of Perpetual under the accelerated resolution program."
Perpetual is the largest thrift in that program, through which the OTS has made nine previous sales.
The OTS official said regulators rejected Perpetual's capital restoration plan because of high levels of nonperforming loans. The thrift has a negative net worth of $51 million and lost $94.9 million in the first six months of 1991.
Sound Move, Analysts Say
Although the region has been pounded by the real estate slump, analysts see an acquisition by Mellon as a sound move. Perpetual has the largest share of the region's residential loans, according to Ferguson & Co., a Washington-based consulting firm.
Mellon sees Washington "as a market that geographically fits," said Anthony R. Davis, a bank analyst with Richmond-based Wheat, First Securities Inc.
Mr. Davis said the market has shown some signs of recovery. Last quarter, 6 million square feet of office space was leased. "This ain't Boston," he added.
"It is a market where they have to beef up or get out," added Dennis Shea, an analyst with Morgan Stanley.
Area Has Troubles
In and around Washington, Mellon would become a stronger competitor alongside such institutions as Riggs National Bank, which had yearend 1990 assets of $6.3 billion; American Security Bank, a $5.6 billion-asset unit of MNC Financial Inc., Baltimore; and First American Bank, part of the $10 billion-asset First American Bankshares empire.
Riggs "bulked up" last year by acquiring deposits and assets of the failed National Bank of Washington. All have had financial troubles tied to the local real estate downturn, and First American has gotten caught up in an international scandal surrounding Bank of Credit and Commerce International.
Also active in Washington are affiliates of such regional holding companies as C&S/Sovran Corp. and Signet Financial Corp. The latter recently assumed deposits of the failed Madison National Bank.
Mellon's stock price was up 62.5 cents Thursday to $34.125. Over-the-counter trade in Perpetual was halted pending the announcement. It closed at 87.5 cents a share on Wednesday.