Financial Corp. of America, parent firm for Stockton-based American Savings & Loan, unveiled a proposal Monday to raise capital by segregating its good assets from the bad through the breakup of American Savings into four subsidiaries.
The proposed breakup is a backup that would be considered if pending negotiations to sell the financial institution fall through, Victor H. Indiek, chief financial officer of FCA, said. Two suitors are interested in FCA: Citicorp of New York and First Nationwide Bank of San Francisco.
The separate operations envisioned in the plan would include two traditional savings and loan firms and two operations in which $5 billion in problem assets and $14 billion in mortgage-backed securities would be lumped, according to a quarterly report that Irvine-based FCA filed with the Securities and Exchange Commission.
According to the proposal, one of the savings and loan subsidiaries would be sold to raise capital and the problem real estate assets gradually would be liquidated with financial assistance from federal savings and loan regulators. The proposal has been submitted to the Federal Home Loan Bank Board, the company said.
$33.4 Billion in Assets
First Nationwide, a subsidiary of Ford Motor, wants to buy FCA for $1 billion in cash but has said it wants financial assistance from the Federal Savings and Loan Insurance Corp. in return for assuming the problems of American Savings, whose $33.4 billion in assets make it the nation's largest S&L. FSLIC is the federal agency that steps in when a savings and loan gets into trouble.
Citicorp, the nation's largest commercial banking company, is primarily interested in buying FCA's burgeoning branch system--now 184 retail offices throughout California.
"Citicorp has made a very interesting proposal," said Home Loan Bank Board member Roger Martin in a recent interview. Martin said Citicorp may be willing to assume more than the branch network, but declined to be more specific.
American Savings' branches are considered its most prized possessions. But FCA also has hundreds of millions of dollars in tax credits that make it an attractive buy for profitable companies, which could use the benefits to cut their taxes.
According to FCA, the four subsidiaries in a newly restructured company would be:
- A company known as "New American" that would consist of American Savings' healthy loans and approximately 170 branch offices in California.
- "Old American," which would have the remaining branches and about $1 billion in assets. Following the restructuring, FCA would sell Old American to raise capital. According to a company spokeswoman, the sale might raise $300 million to $500 million in new capital because Old American would possess the tax benefits.
- "Real Estate Thrift," to consist of the troubled real estate assets. This portfolio would be liquidated over a 10-year period, and any operating losses would be partly financed by a loan from the FSLIC that would be repaid by New American's operating earnings.
- "MBS Thrift," which would consist of the mortgage-backed securities. The income from these securities would be used to finance the real estate thrift as its assets are gradually liquidated, FCA officials said.
In unveiling the plan, FCA officials said the breakup proposal is only preliminary and faces numerous tax, legal and accounting obstacles that would have to be resolved before it could be implemented.