Republic New York Corp. is planning some heavy cost cutting at Crossland Savings Bank, which it is acquiring in a $530 million cash deal.
Republic expects to slash the thrift's costs by anywhere from one-third to one-half, executive vice president Thomas Robards said on Monday.
Republic said Sunday that it had agreed to buy the once-troubled thrift's parent, Brooklyn Bancorp, for about 1.5 times its book value. The deal is expected to cement a leadership position for Republican in the rapidly consolidating New York City market - moving the company to No. 3 in deposits from No. 5.
Mr. Robards, in an address to analysts, declined to say exactly how the cost savings would be achieved. But he did note that Republic and Crossland have 14 overlapping branches. Crossland, with assets of $4.1 billion, has 33 branches and 890 employees.
"This transaction is consistent with Republic's strategy of extending our retail franchise, expanding our base of core deposits, and increasing the number of customers we serve," said Walter H. Weiner, Republic's chairman and chief executive. When the buyout is completed, he said, "Republic will have well over one million retail customers in the New York market."
Brooklyn Bancorp stock closed Monday's trading at $38.875, up $2. Republic New York Corp. closed at $57.625, up 12.5 cents
Although Wall Street analysts were generally pleased with the deal, some raised questions about Crossland's real estate portfolio, which is covered for losses up to 80% by a Federal Deposit Insurance Corp. agreement in effect until 1998.
Charles Cranmer of M.A. Schapiro said he was sure that Republic had done "a huge amount of due diligence." The important thing about buying this property is making sure you understand the real estate that Crossland owns "and that it's worth what they say it's worth, and not less," Mr. Cranmer said.
"You have to go out and kick the tires," he said.
As recently as August 1993, when the FDIC gave Crossland Savings a controversial $1.2 billion cash infusion, the Brooklyn-based thrift had $2.8 billion in troubled assets. As of June 30, Crossland's nonperformers were down to $272 million, while restructured but performing loans amounted to $292 million.
Assuming no further charges to the loan portfolio will have to be made, Republic would also reap the full benefit of Crossland's $100 million loan loss provision.
"This is an attractive deposit franchise characterized by large branches with stable deposits," said Thomas Theurkauf of Keefe, Bruyette & Woods Inc. "Pricing was very much in line with our expectations. We were expecting between $40 and $42," and the deal came in at $41.50 per share, or $529.6 million.
The acquisition would boost Republic's deposits in the New York City area to $11 billion, or about 5.41% of the market. Crossland's branches are concentrated in Brooklyn, with additional offices in Manhattan, the Bronx, Queens, and Nassau County.
Chase Manhattan Corp. and Chemical Banking Corp. would be No. 1 in the market after their merger, with a combined market share of about 30%. And Citicorp will hold on to the No. 2 spot, with about 15% of the market.
The deal would mean a nearly 77% gain for investors who bought Brooklyn Bancorp shares from the government two years ago for $23.50. The FDIC, meanwhile, would earn $18 million on the one million Brooklyn Bancorp warrants it holds.
Mr. Weiner said Richard Kraemer, Brooklyn's chairman and CEO and a former executive at the Dime Savings Bank and at Home Savings of America, will serve on Republic's board and its senior management. His management role was not specified.