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Profitable Institution Was Expected to Do Acquiring : Purchase of CommerceBank Surprises Most Observers

November 06, 1987|JAMES S. GRANELLI | Times Staff Writer

Most observers thought that CommerceBank in Newport Beach--a steadily growing, profitable institution that has been the biggest independent in Orange County since 1985--was looking for a smaller bank to acquire.

Instead, it is being gobbled up in a $16-million deal by Independence Bank in Encino, owned by Dr. Ghaith Pharaon, a Saudi Arabian who bailed former Carter Administration budget director Bert Lance out of financial difficulties nine years ago by buying most of his stake in the National Bank of Georgia.

CommerceBank directors could not be reached Thursday to explain the reasons for their tentative approval of the deal. But banking consultant Gerry Findley suggested that the bank, despite its profitability and the quality of its management, has not generated much investor interest. As is the case with many independent banks, he said, CommerceBank's stock is undervalued, trading at about its book value of $10 a share.

Thus, the price offered by Independence, $14 to $16 a share, may have been too good to ignore, other consultants in the county said.

Posted Profits

The 8-year-old CommerceBank, like most independents in the state, struggled through the high interest rates and the downturn in real estate values in the early 1980s. It managed, however, to continue posting profits while many banks were awash in red ink.

Industry leaders generally picture the bank as one of the better-managed institutions in the county. And it has produced well-respected top officers, including Lance C. Blue and David T. Blankenhorn, both of whom work at other institutions now.

Clyde H. Gossert, current president of CommerceBank, said he expects to take a position with Independence Bank after the merger. However, a definitive agreement still must be hammered out in the next two months, and a closing isn't contemplated until next spring.

CommerceBank has built a niche in the business banking field, but had reached a size--about $235 million in assets--where it was getting too big for small investors but still was too small for major players in the market, some banking consultants in the county said.

The merger with Independence would create a bank with more than $600 million in assets and a geographic base that could make it attractive to Eastern banking companies when, after 1990, they are allowed by state law to purchase California banks.

Compete for Larger Loans

It would also create one of the 25 largest banks in the state--one that could compete for larger business loans, said Gossert.

Independence has long wanted an Orange County presence and has been expanding under Pharaon, who bought the bank two years ago. Although it has no branches in Orange County, it has opened a loan production office in Huntington Beach and acquired a mortgage company there also.

"Orange County is one of most dynamic and one of most prosperous counties in this part of nation and probably in whole country," said Kemal Shoaib, chairman of Independence. "It's so very, very attractive. Anyone in this area (San Fernando Valley) would want to be in Orange County."

Executives at Independence had talks with a number of Orange County banks, including American Merchant Bank in Newport Beach, which subsequently agreed to be acquired by Eldorado Bancorp in Laguna Hills.

Pharaon, whose father was a physician to the royal court in Saudi Arabia, has built a diverse financial empire that includes hotel and other real estate holdings and a cement company.

In January, 1978, he bought nearly 121,000 shares of Bert Lance's stock in the National Bank of Georgia--10% of the total shares outstanding--for $2.4 million. Lance, whose personal financial misfortunes had forced him to resign four months earlier as President Carter's budget director, said at the time that the proceeds would be used to shore up his "so-called sick loans."

Pharaon sold his shares in the Atlanta bank in August, Shoaib said.

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