In a union of ample wealth and excellent blood lines, the Los Angeles-based parent company of Home Savings of America said Monday that it has agreed to acquire Bowery Savings Bank of New York for $200 million.
H. F. Ahmanson, Home Savings' parent, made more than $300 million in 1986, most in the savings and loan industry, while Bowery Savings Bank, founded in 1834, is one of New York's oldest and best-known financial institutions.
"This gives Ahmanson a much bigger presence in a very major market," said Jerome Baron, analyst for Prudential-Bache Securities in New York.
Ahmanson Chairman Richard H. Deihl said in a statement that the purchase "will enable us to expand significantly our existing savings and mortgage lending operations in New York." Deihl was not available for further comment.
Reeling under a mound of unprofitable loans, Bowery Savings was bailed out two years ago through a joint private-government effort valued at about $700 million. Wealthy private investors put $100 million into the ailing institution and the Federal Deposit Insurance Corp. pledged the remaining assistance over a period of several years.
The private investors included Richard Ravitch, former head of New York's Metropolitan Transit Authority, who became chairman of the financial institution. Another was Omaha financier Warren E. Buffett, who recently purchased a major stake in the parent company of Salomon Bros., a well-known New York investment banking house.
Biggest Deposit Base
Bowery Savings is very much an urban financial institution, with 25 branch offices in the New York area, including Manhattan, Queens and Brooklyn. It has assets of $6.7 billion and deposits of $5.1 billion. Baseball legend Joe DiMaggio is its celebrity spokesman.
Ahmanson is a national banking institution with 318 branch offices in seven states, including California, where its offices are known as Home Savings of America. Branches elsewhere in the country are known as Savings of America.
Ahmanson's deposit base of $21.5 billion is the largest in the savings and loan industry and its assets of $27 billion are third-largest.
An Ahmanson spokeswoman said Bowery Savings makes an attractive buy for several reasons, including its "tremendous name recognition" in the New York area. The 25 branches will probably be renamed Bowery Savings of America when the sale is approved, the companies said. (Ahmanson already has 18 Savings of America branch offices on Long Island.)
In addition, the spokeswoman said, the deal will be "non-dilutive" for Ahmanson's shareholders, meaning that earnings per share will not be depressed by the sale. Ahmanson said it will buy Bowery with $200 million in cash and will not issue new stock.
Ahmanson, which has about 40,000 shareholders, has nearly 98 million shares of common stock outstanding, about 80% of which is owned by institutional stockholders.
Financial analysts generally applauded the sale, pointing out that Bowery Savings represents a huge reservoir of low-cost deposits for Ahmanson.
Performance Not Disclosed
Indeed, Bowery Savings is known for its stable deposit base representing the savings of blue-collar workers who live in New York City. Its branches have an average of more than $200 million in deposits each, an abnormally large amount for a financial institution of any kind.
However, some questions remain, primarily because the companies did not disclose the financial performance of Bowery Savings, which is not publicly held. The Ahmanson spokeswoman would say only that Bowery is profitable and does have net worth.
"It is a long way from running out of net worth," she said, without being more specific.
It was not known Monday whether FDIC would continue to provide assistance to Bowery Savings if the sale is approved. The Ahmanson spokeswoman said that issue is still unresolved.
The questions about Bowery Savings' financial condition stem from huge losses in the late 1970s and early 1980s, when it was not earning enough money on its fixed-rate loans to cover costs. The institution was kept solvent with loans from FDIC.
Though both Ahmanson and Bowery called the deal "definitive," they said final approval must await regulatory approvals.