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New Ford Plan to Acquire FCA Is in the Works

September 24, 1987|TOM FURLONG | Times Staff Writer

Ford Motor Co. has gone public with its desire to acquire troubled Financial Corp. of America through a $1-billion infusion of capital.

"We are seriously interested in bidding," Robert Lackovic, president of First Nationwide Bank, confirmed Wednesday in a telephone interview. First Nationwide Bank, headquartered in San Francisco, is Ford Motor's savings and loan subsidiary.

First Nationwide officials expect to present an updated acquisition plan to savings and loan regulators next week and believe that there is a "50-50" chance that a deal could be arranged before year-end, a company spokesman said.

The news is Ford's first official confirmation of its interest in FCA and represents the latest wrinkle in a continuing regulatory effort to pump fresh money into the Irvine-based financial institution. FCA's operating subsidiary is American Savings & Loan, the nation's largest thrift.

FCA's fortunes have darkened further in recent months as its loan portfolio has continued to deteriorate and interest rates have increased. FCA lost $177 million the second quarter.

A regulatory rescue effort began last spring and is being spearheaded by the Federal Home Loan Bank Board and its deposit-insurance arm, the Federal Savings and Loan Insurance Corp. FSLIC also handles closures and forced sales of insolvent savings and loans.

"In the final analysis, if something needs to be done, this bank board will do what is least costly to FSLIC," said Roger Martin, newest member of the three-person bank board. Martin said an immediate resolution of the FCA matter is not necessary.

American Savings, which has nearly $34 billion in assets, now needs more than $900 million in capital to bring it into compliance with present federal regulatory requirements.

Combining First Nationwide Bank and American Savings & Loan would create a behemoth financial institution, with some $50 billion in assets nationwide and 300 branch offices in California alone.

But such a union would require resolution of some knotty differences that have been the subject of continuing discussion for several months. A major question is how shareholders will be affected by the sale.

In the past, First Nationwide has taken the position that it would not pay off FCA's stockholders. If they are to be compensated, FSLIC should pay them, company sources say. "This is a real delicate issue," one official close to the negotiations said.

But First Nationwide Chairman Anthony Frank would not confirm this stance. "We'll take our cue from FSLIC on this," he said without elaboration in a telephone interview Wednesday.

FCA has more than 12,000 shareholders of record and 35.9 million outstanding shares of common stock. Its closing price Wednesday on the New York Stock Exchange was $3 a share.

First Nationwide also wants FSLIC to absorb a major portion of future losses on FCA's loan portfolio, which includes more than $2 billion in questionable loans.

It also includes about $18 billion in mortgage-backed securities, whose market value has been depressed in recent months by rapid rises in interest rates. (When interest rates go up, the value of such bonds drops.) Heavy losses would result if those mortgage-backed securities had to be sold today.

Martin indicated that preliminary First Nationwide proposals would cost FSLIC as much as $4.5 billion over the next six to seven years. There is "no way" the bank board would agree to that, Martin said.

In addition to the First Nationwide proposal, the Federal Home Loan Bank Board is considering a new variation of an old idea that calls for breaking up FCA into several components, which would then be sold, liquidated or kept afloat. The plan was prepared by FCA.

The components would include a healthy savings and loan, a group of nonperforming loans to be absorbed by FSLIC and an accumulation of tax credits to be sold for perhaps $1 billion.

One plus for the breakup plan is that it would cost FSLIC only $1.2 billion to $2 billion over a 10-year period. But FCA officials showed little enthusiasm for the plan, even though they had it drawn up.

FCA Chairman William J. Popejoy termed the approach "a long shot" but said it would be presented in detail to the bank board next week.

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