Security Pacific is close to an agreement to buy Seattle's Rainier Bancorporation, parent of Washington state's second-largest bank, in a stock-swap deal worth about $1 billion, banking industry sources said Monday.
Rainier acknowledged Monday that it was holding merger talks with two large out-of-state bank holding companies but declined to identify them. Reliable industry sources, however, said the two bidders were Los Angeles' Security Pacific and First Bank System of Minneapolis.
The sources said Security Pacific is likely to emerge as the winner and that a deal could be announced as early as today.
Spokesmen for Security Pacific and First Bank System declined to comment Monday. But Security Pacific Chairman Richard J. Flamson III and several of his top lieutenants were in Seattle on Monday, presumably to finalize the Rainier deal.
Rainier said both merger proposals from the two banks involve an exchange of stock at "a substantial premium" over the current market price of Rainier common shares.
Rainier's common stock, traded on the over-the-counter market, closed Monday at $47.50, up $5.25, on volume of more than 1 million shares. Rainier has 20.5 million shares of common outstanding, indicating that the sale price will approach, if not exceed, $1 billion.
Security Pacific closed at $40.25, down $1.25, in composite trading on the New York Stock Exchange.
In its announcement, Rainier said that under both proposals Rainier would continue to operate from its Seattle headquarters as a separate subsidiary with the Rainier name. "The Rainier board of directors is evaluating the proposals and expects to make a decision this week," the statement said.
The bank declined to comment further.
Rainier Bancorporation is a multibank holding company with assets of $9.2 billion as of Dec. 31. The Seattle-based company operates three commercial banks, a savings bank and a mortgage company. It has operations in eight Western states and nine foreign countries around the Pacific basin.
Rainier National Bank, the company's largest unit, has 140 branches in Washington state and is the state's largest independent bank.
Seafirst Bank, Washington state's largest bank, is a subsidiary of San Francisco's BankAmerica, which acquired it in 1983 after bad energy loans nearly drove the Washington bank into bankruptcy.
Loan Losses Up
Rainier Bancorporation reported 1986 profits of $70 million, a 7% increase over 1985. Its mortgage company subsidiary reported net losses of $386,000 for the year. Rainier Chairman G. Robert Truex Jr. attributed the mortgage unit's losses to weakness in the real estate industry and an increased provision for foreclosure losses.
Overall, loan losses were $30.8 million for 1986, up 25% from the previous year, because of continued problems in the Northwest's forest products industry and other cyclical businesses.
The Security Pacific-Rainier deal, if completed, would further Flamson's aim of establishing a strong retail banking presence for Security Pacific throughout the West. He said in a recent interview that he believes that only a relative handful of large regional and national banks will survive the coming era of interstate banking.
He said he is trying to build one of the survivor organizations through an aggressive acquisition program. In just the past year, Security Pacific has acquired Arizona Bancwest, that state's third-largest bank, and announced agreements to purchase smaller banks in Nevada, Oregon, Washington and California.
'Logic to Affiliation'
The purchase of Rainier, if Flamson pulls it off, will be by far the largest of the deals. Arizona Bancwest, the largest of his recent acquisitions, has roughly half the assets of Rainier.
"There is certainly logic to such an affiliation," said banking industry analyst Dan B. Williams, of the San Francisco brokerage house of Sutro & Co. "Security Pacific has made it clear it wants a presence in all the Western states. Rainier is a very successful and meaningful presence in Washington."
Williams said the deal would make sense for Rainier because of the rich price--estimated at nearly twice its book value of $26.85 a share--and because it will give Rainier a strong parent firm in its competition with Seafirst, which is returning to profitability after its brush with disaster.