Sumitomo Bank of California, the sixth-largest bank in the state, has been for sale for nearly two months but is having a hard time finding a buyer.
The U.S. unit of Sumitomo Bank Ltd. of Osaka, Japan, announced Dec. 5 that it was "considering various strategic alternatives" and had hired Goldman, Sachs & Co. and "a number" of other investment banks. Sumitomo's parent is an investor in Goldman Sachs.
The announcement sent investment bankers all over Wall Street scurrying to line up would-be buyers. But though the San Francisco-based bank and its 47 branches might be considered a golden opportunity to grab market share in the state, few U.S. bankers are showing any interest in Sumitomo of California.
"The geographic footprint of the franchise is interesting," said Thomas Theurkauf, analyst at Keefe, Bruyette & Woods. "But their deposits and loans are primarily among Asians in California. So this is not just another network of branches that's for sale."
BankAmerica Corp. and Wells Fargo & Co. have already passed, people familiar with the companies say.
And people close to H.F. Ahmanson & Co. say the big thrift has also passed, even though acquiring Sumitomo of California would further the thrift's long-standing goal of building its consumer banking business.
That seems to leave only two potential buyers: Washington Mutual Inc. and U.S. Bancorp. Both are acquisitive, and both have expanded into California recently. But both are also busy with previous mergers.
Sumitomo officials and their investment bankers declined to comment on the process, but deal makers who have tried to set up Sumitomo with a buyer say the bank will sell for cash only. Sumitomo's parent owns 72% of the bank's shares and does not want to exchange them for stock in another U.S. banking company, they said.
It is unlikely many bankers will want to pay cash for a company whose market value is $770 million and whose 8.86% return on equity is half the industry average.
Sumitomo's balance sheet also is raising concerns, according to the would-be deal makers.
Though the bank has diversified its lending so it is not so exposed to the commercial real estate loans that forced the bank to report a $8.80 per-share loss in 1995, internal auditors have raised questions about the bank's lending practices.
If the internal auditors are raising such questions, their concerns "could be just the tip of the iceberg," said Campbell Chaney, an analyst at Sandler O'Neill & Partners, and people doing due diligence could find even worse problems.
Whatever the case, investment bankers say no U.S. bank in or outside California is in active talks to buy Sumitomo's California banking unit, which has $5.2 billion of assets.
In the end, U.S. bankers are not stampeding for Sumitomo because they fear many of its customers would leave if the bank sold, merger advisers say.
About 75% of Sumitomo's customers are Asian or of Asian descent. If these customers prefer to keep their money in an Asian-controlled bank, they can switch to Unionbancal Corp., which is 81% owned by Bank of Tokyo- Mitsubishi, or to Sanwa Bank California, which has more than 100 branches around the state.