SAN DIEGO — Great American First Savings Bank on Monday called off its plan to acquire ailing United Bank of San Francisco but offered instead to help boost the bank's sagging net worth by buying nine of its branches for $9 million in cash.
The new proposal apparently is intended to shield Great American from United Bank's problem loan portfolio while satisfying a demand by federal regulators for the San Diego-based S&L to buy or bail out an ailing financial institution. Regulators have required Great American to assist another institution to win federal approval for its proposed $102-million acquisition of profitable Home Federal Savings & Loan of Arizona.
The scaled-back Great American offer would provide a much-needed capital infusion for United Bank, whose net worth as of Sept. 30 had dwindled to $2.2 million, or only about 0.3% of its $640 million in assets. Regulators normally require an S&L to maintain a net worth--a financial institution's cushion against losses--of close to 3% of its assets. Great American's offer also would maintain the independence of United Bank.
Great American's previous bid to buy United Bank called for it to issue a $4-million, no-interest note to the bank's shareholders. It also provided for Great American to absorb an undisclosed amount of losses over a three-year period.
Analysts lauded Great American's new offer, saying the deal would limit its exposure to United Bank's potential loan losses.
Publicly, officials of both banks downplayed the issue of United Bank's problem loans.
"Our goal has always been to remain independent (and) serve the Asian community," said Percy Duran, a senior vice president of United Bank, which is owned by Asian-Americans.
$9 Million in Cash
The terms of the new offer are for Great American to assume $81 million of United Bank's performing single-family home loans and $90 million in United Bank deposits. Great American also would pay United Bank $9 million in cash to cover the difference.
In addition, Great American would put $1 million in an escrow account for United Bank to use for real estate consulting "if we determine that we need" the help, Duran said.
Great American, which has $7.6 billion in assets and 122 offices in California, would take over nine of United Bank's 26 branches. Six of the branches are in Los Angeles, two are in Sacramento and one is in Stockton.
The deal is contingent on the approval of Great American's proposed merger with Home Federal by the Federal Home Loan Bank Board.
United Bank has suffered losses since early last year, primarily because of problem real estate loans.
Earlier this month, regulators ordered the bank to fire its outside auditors, KMG Main Hurdman, for allegedly understating the bank's loan losses last year. KMG Main Hurdman has denied the allegations.