In a regulatory filing last week disclosing its plan to more than double its stake in a California thrift company, FBOP Corp. in Oak Park, Ill., said that it intends to be a “passive” investor.
But the board of the target company, PFF Bancorp Inc. in Rancho Cucamonga, apparently is not taking FBOP’s word for it. It says that FBOP’s application to raise its ownership stake to 24.9% “is not in the best interest of shareholders” and has asked the $14 billion-asset FBOP, a multibank holding company, to promptly withdraw its application.
“Absent such withdrawal prior to the end of the public comment period for the application, PFF intends to file a protest … with the Federal Reserve Board,” its president and chief executive officer, Kevin McCarthy, wrote in a letter to FBOP chairman Michael E. Kelly that was filed Thursday with the Securities and Exchange Commission.
How the battle plays out remains to be seen, but it appears PFF investors, at least, would like to see FBOP prevail.
PFF’s shares — depressed for much of the year as the company’s loan losses mounted — soared nearly 30% in three days after FBOP disclosed its plan to increase its stake in PFF. Investors seemed to betting that the acquisitive FBOP will eventually buy the $4.3 billion-asset PFF outright.
But the news that PFF’s board and management had asked FBOP to withdraw the application rattled investors. By late Friday, the shares were down more than 7% from Thursday’s close, to $12.13.
FBOP and PFF officials did not return calls from American Banker, but Joseph Gladue, an analyst at Riley & Co. in Los Angeles, who follows PFF, (FBOP is privately held) said PFF investors are frustrated and would probably a welcome a sale to FBOP.
FBOP has bought more than a dozen banks over the last decade and now has nine banks in Illinois, California, Texas, and Arizona
A sale “could be a ray of hope for people who are pretty far under water,” Mr. Gladue said.
Before last week’s rally, PFF had lost roughly two-thirds of its market value in the last six months.
As is the case with many banking companies these days, PFF’s stock slide can be traced directly to rapidly deteriorating credit quality.
PFF is an active lender to residential developers and as home sales have slowed to a trickle in California’s inland valleys, many borrowers are struggling to repay their construction loans.
At Sept. 30, non-accrual loans totaled nearly $228 million – or 5.52% of net loans and leases -- up nearly 1,900% from just six months earlier. For the quarter, the company lost $7.5 million, compared to a profit of $14 million for the third quarter quarter in 2006.
In an SEC filing Dec. 18, FBOP’s investment subsidiary controlled by Mr. Kelly disclosed that it had acquired more than 1 million PFF shares over the last two months, increasing its stake to 9.85%. It further said that on Dec. 7 it had applied with Federal Reserve Board to acquire another 15% stake.
FBOP said in the SEC filing that its officials “ have had meetings with the PFF Bancorp, Inc.’s officers and members of its board of directors. Currently, the reporting persons’ intent continues to be to act as a passive investor.”
Bobby Bohlen, an associate vice president with KBW Inc.’s Keefe Bruyette & Woods Inc., said that if FBOP officials have met with PFF’s board and management then it signals to him that FBOP would “plan to be more than just a passive investor.”
PFF’s Mr. McCarthy said in his letter that he first learned of FBOP’s proposed acquisition in a voice mail from Greg Mitchell, CEO of FBOP’s largest subsidiary, the $5.7 billion-asset California National Bank.
He wrote that the board has reviewed the proposed investment and has unanimously rejected it. He added that FBOP’s description of meetings with PFF officials is “misleading.”
“There has never been any discussion regarding FBOP’s investment in PFF with any officer or dierctor of PFF other than me,” he wrote. He added that even in those meetings FBOP never indicated that it intended to increase its stake above 10%.
PFF “was completely unaware of its intended filing and wasn’t even provided a courtesy copy,” he wrote.
