With this week's merger announcement by H.F. Ahmanson & Co. and Coast Savings Financial Inc., California may finally begin living up to its reputation as the end of the bank acquisition rainbow.

The long-anticipated gold rush from out of state never materialized, observers of the California market said, because the Golden State had to go through an internal shakeout. The $901 million Coast deal is just the type of "second-tier" acquisition that will create more attractive buyout targets.

It may still take a couple of years before acquisitions like Washington Mutual Inc.'s of Great Western Financial Corp. become more the rule than the exception. But once California institutions bulk up among themselves, merger advisers and analysts say, the invasion is inevitable.

The notion that outside banking companies would scurry into California at an early date "has always been a pretty dubious proposition," said H. Rodgin Cohen, a partner at Sullivan & Cromwell, the New York law firm that advised Ahmanson on its latest deal.

He said there just aren't many California institutions big enough to command an outsider's time or money. And it would not be worth their while making small, toehold purchases.

"If you want to buy a bank of size in California, all you've got is BankAmerica and Wells Fargo," Mr. Cohen said. "The rest are thrifts, and although they are more bank-like than before, there remains great reluctance to entering a new market through buying thrifts."

After BankAmerica Corp. and Wells Fargo & Co., California's next biggest commercial banks, Sanwa Bank and Unionbancal Corp., are Japanese-owned.

The largest market share held by a California independent is the 0.87% of City National Corp., Beverly Hills.

Gene Galloway, executive vice president for retail and community banking at Los Angeles-based Sanwa, said, "To be full-fledged here you've got to be statewide." Few potential acquisition targets can fill that bill.

Consolidation is thus likely to proceed in California much as in New England and the Middle Atlantic states, with a handful of companies buying neighbors.

"In 12 to 24 months, I think California will be ready" to receive big banks from outside, Mr. Galloway said.

If there is a thrift that could attract an outsider, it is Ahmanson, said Gareth Plank, analyst at UBS Securities in San Francisco. Including Coast, it will be California's third-largest financial institution.

"The two million customers they have is certainly an attraction," Mr. Plank said.

But Ahmanson would come with some baggage.

After the Coast acquisition, its balance sheet will carry substantial "intangible goodwill," Mr. Plank said. This goodwill is not to be confused with the "supervisory goodwill" that some thrifts may recover from legal action against the federal government.

The amortization of goodwill detracts from reported quarterly earnings. Although many investors have been persuaded to overlook goodwill in favor of the cash earnings companies generate, Mr. Plank believes Ahmanson's goodwill would be a turn-off.

The litigation over supervisory goodwill may also have been a deterrent.

The Ahmanson-Coast deal was structured to alleviate that problem. Coast and Ahmanson agreed that Coast shareholders would receive 100% of after-tax proceeds from any damages Coast collects from the government. Analysts believe it has a strong case in seeking compensation for changes in accounting rules enacted after the thrift crisis of the late 1980s.

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