Maybe it's just California dreamin,' but there's a chance that Washington Mutual Inc.'s planned merger with American Savings Bank will at last start a big merger wave rolling across the Golden State.

The deal, the biggest merger ever of two thrifts, puts a respected, out- of-state institution's imprimatur on buying big thrifts in California. It also shows that such deals can please the buyer's shareholders. Washington Mutual's stock soared 16% the day the merger was announced.

Meanwhile, dealmakers, thrift executives, and investors have been whispering that another big California thrift merger is likely within the next month, possibly a combination of Cal Fed Bancorp and First Nationwide Bank. All of which has gotten at least some merger promoters frothing with excitement.

"California is about to break loose," declared Emanuel Friedman, chairman of Friedman Billings Ramsey & Co. in Arlington, Va. The investment bank provided a fairness opinion to the Federal Deposit Insurance Corp. on its stake in the American Savings merger.

Wall Street analysts have been insisting for more than two years that a wave of mergers was about to sweep California thrifts. A recovering economy, and the desire of some of the country's biggest banks to enter the state were sure to trigger deals, they said.

The assumption has been that out-of-state banks will buy thrifts rather than banks because big commercial banks are unavailable in California. Besides, thrifts are unusually big in the state, which makes them attractive entry vehicles.

Thrifts' combined share of California deposits is 26%, twice the national total, according to SNL Securities, of Charlottesville, Va. Eight of the country's 11 biggest thrifts are based in California. The biggest, H.F. Ahmanson's Home Savings of America, ranks behind Wells as the state's third-largest depository. Great Western Bank is number four.

But until the Washington Mutual-American Savings announcement last week, talk of a big merger wave had been nothing more than idle speculation.

Sure, NationsBank chairman Hugh McColl Jr. trekked out to California couple of years ago to meet with thrift executives, including Great Western chairman James Montgomery.

And, as recently as early this year, Glendale Federal Bank, the country's 10th-largest thrift with $14.6 billion of assets, approached Los Angeles Bank Cal Fed Bancorp, with a merger-of-equals proposal.

But Mr. McColl hasn't followed up on his much-discussed California trip with any serious consideration of a California thrift purchase, California investment bankers and thrift executives say. And Cal Fed never seriously considered Glenfed's proposal.

Nor has idle talk of a merger of equals between Ahmanson and Great Western prompted any deal-making efforts, well-placed sources say.

"We do a lot of work with the guys that would be buyers in this state, but I don't see it today," said one West Coast investment banker, who asked not to be named, referring to a big deal involving an out-of-state bank, or the in-market mergers.

The problem, deal-makers and thrift executives say, is one of pricing expectations. Out-of-state banks are loath to enter a market as competitive as California by paying a premium for a thrift.

Meanwhile, the state's biggest thrifts all have turnaround plans - generally involving becoming more bank-like - that they believe justifies premium pricing.

"There's too much for (the out-of-state banks) to do elsewhere to dilute their balance sheets" by buying California thrifts, the investment banker said.

But the Washington Mutual-American Savings deal could change the alchemy enough that a merger wave may become more likely.

For starters, it demonstrates that buyers and sellers can agree on a price that is mutually beneficial.

By paying 1.54 times tangible book, or 8.3 times earnings, $22 billion- asset Washington Mutual is getting a $20 billion-asset thrift that ranks as the second-largest mortgage originator in California.

Washington Mutual expects that by continuing American's earnings momentum, taking advantage of a good balance sheet fit, and doing modest cost-cutting, the deal will be highly accretive, boosting Washington Mutual's earnings 3.3% in 1996, and 19.6% in 1998.

Robert M. Bass and his investment partners, who control American, apparently agreed. They relished the chance to get 22% of Washington Mutual in the all-stock transaction, and plan to be long-term investors, their associates said.

"I think there's a few messages in this transaction for the marketplace," said Philip R. Erlanger, a Lehman Brothers Inc. managing director who represented Mr. Bass and his partners in the merger talks. "The first is that there is a necessary pricing discipline" that can benefit both parties to a transaction.

What's more, Washington Mutual has been an active buyer. Once it's finished digesting American, investment bankers and thrift executives expect it to be on the hunt for other California buys.

The merger could "bring a renewed interest" to mergers and acquisitions in California, said Robert M. Franko, chief financial officer of Imperial Bancorp, a $3 billion-asset bank company based in Inglewood, Calif. He expects Imperial, with 11 branches throughout the state, to be among those getting more attention.

Furthermore, Washington Mutual isn't the only big thrift trolling for California acquisitions. So is $14.7 billion-asset First Nationwide Bank, which is based in San Francisco and controlled by Ronald O. Perelman and Texas banker Gerald J. Ford.

Their plan ever since buying First Nationwide from Ford Motor Co. in 1994 has been to shed its sizable branch network outside the state, and to bulk up inside it. So far their only California acquisition has been the February purchase of $4.1 billion-asset SFFed Corp., of San Francisco.

But a well-placed source, who asked not to be named, said the company has a list of eight to 10 California thrifts that are acquisition targets. The source declined to identify the targets, but said they range from assets of $2 billion to $10 billion.

Another knowledgeable source said that a couple of months ago First Nationwide was close to buying a thrift with about $2 billion of assets, when word came down to halt the transaction because a bigger, unnamed, deal was near.

Indeed, rumors have been heating up in recent weeks that First Nationwide is near a deal to buy $8.3 billion-asset Coast Savings Financial Inc., of Los Angeles. There is even talk of a potential merger with $14 billion-asset Cal Fed. First Nationwide and the other companies, as a matter of policy, won't comment.

But if First Nationwide does conclude a big deal soon, the company would only fan the merger talk that has started in the wake of the Washington Mutual deal.

"The only thing that is irrefutable is that supply is dwindling for available thrifts," said Rodman & Renshaw Inc. analyst Campbell Chaney in San Francisco. "If you are an acquirer looking to get into California, you're going to have to take notice of that."

Mr. Erlanger, the investment banker, said he doubts the Washington Mutual-American Savings merger "should be viewed as something that immediately creates spirited bidding for the various rumored targets."

But, he added, "it probably does create more momentum for consolidation."

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.