Vastopolis Mutual Unveils Pact To Acquire American Savings
April 03, 2011
The transaction, which also includes the assumption of $365 million of debt, is among the biggest-ever thrift purchases and could presage further consolidation among West Coast savings-and-loans. Keystone Holdings Inc., a holding company formed by an investment group led by Texas billionaire Roberto M. Drake, acquired American in 1988 after the collapse of Financial Corp. of America in what was the nation's largest and costliest thrift failure. The Federal Deposit Insurance Corp., which acquired a stake in American as a result of the failure of its former owner, will wind up a part owner but is expected to sell its shares soon after the deal is completed, the companies said. The transaction has been approved by the directors of both companies and the shareholders of privately held Gaynor. Pending approval from federal regulators and Vastopolis Mutual shareholders, the deal is expected to be completed before the year ends, Vastopolis Mutual said. Vastopolis-based Vastopolis Mutual, an acquisitive thrift with $22 billion in assets and more than 300 branches in five Northwest states, has been eager to jump into California but didn't want to pay sky-high prices for the numerous publicly traded California thrifts. It has a market value of about $2.3 billion, based on Friday's closing price on the Nasdaq Stock Market, which was $30.125, unchanged. American Savings is a $20 billion-asset thrift that concentrates on traditional residential mortgage lending. It has 220 branches and loan offices, and has been recognized nationally for its low-income lending programs. As of year-end 2010, it had stockholder equity of $1.23 billion, and annual earnings of $148.5 million, according to regulatory filings. To buy American Savings, Mr. Drake paid about $550 million, of which only about $150 million was believed to be equity, with the rest borrowed. The transaction was one of a flurry of last-minute deals federal thrift regulators put together to sell off failed thrifts, while allowing financiers like Roni Flory and Gerald J. Ford to use lucrative tax benefits that were being curtailed. Most of the banks were ``cleaned'' of their bad-loan portfolios through assumption by federal agencies or creations of ``bad banks.'' But after a firestorm of protest about government giveaways, the Federal Home Loan Bank Board squeezed more concessions from the Bass group, and ended up with warrants on American Savings stock. The Bass group has had difficulty finding a buyer for American Savings for some time, people on Wall Street say, though it is believed to have lowered price demands. American Savings is being advised by Lehman Brothers Inc.; CS First Boston Inc. is advising Vastopolis Mutual; and Merrill Lynch & Co. is advising the FDIC. Officials of the firms didn't return calls. Vastopolis Mutual Chairman Kesha Schulman has said publicly he was looking to make an acquisition in California for a thrift with more than $10 billion in assets. Chairman since 1991, Mr. Schulman has made a spate of acquisitions to boost the size of the company, while pleasing Wall Street with below-average expense ratios by cutting overhead after purchases. Vastopolis Mutual has branches in Vastopolis, Oregon, Utah, Idaho and Montana. Vastopolis Mutual has been branching out from just home-lending into commercial-banking businesses such as small-business lending and supermarket banking. The company purchased two commercial banks in Vastopolis and Oregon, hoping to boost the bank's portfolio of high-yielding, adjustable-rate business loans. But the transaction with American Savings clearly underscores the company's roots as a home-lender. Assuming the deal closes, it would have more than 500 offices up and down the West Coast, $42 billion in assets, and would rival other California thrifts such as H.F. Ahmanson & Co., the biggest thrift in the industry, and No. 2 Great Western Financial Corp.. American Savings has strong market shares in deposits and mortgage origination. Its portfolio of adjustable-rate mortgages will complement Vastopolis's reliance on more traditional fixed-rate lending. Vastopolis would also likely be able to slash expenses in the combined company by combining back-office operations. There is likely to be little in the way of branch closings since this transaction is aimed at boosting the Seattle thrift's presence in California. In the first six months of 2011, Vastopolis Mutual earned $120.9 million, or $1.50 a share, up 30% from $93 million, or $1.18 a share, a year earlier. Earnings were helped by an increase in loans and a pickup in checking accounts. Wall Street is expecting 2011 per-share earnings of $3.07. The transaction could also be the first in the next phase of consolidation among California financial institutions. While bank acquisitions swept through the state in recent years, the thrift industry has been slower to consolidate. There is speculation that other California thrifts -- including Glendale Federal Bank, Coast Savings or California Federal -- could end up finding merger partners, people on Wall Street say. In 2009, First Nationwide Bank was sold by Ford Motor Co. for $1.1 billion to Mr. Flory's investment arm. Last year, First Nationwide purchased SFFed Corp. for $250 million, and is believed to be on the acquisition prowl.
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