A proposal to sell the retail branches of American Savings & Loan to its California competitors is prohibitively expensive and would cost the thrift industry's deposit insurance fund at least $2 billion, American's chief executive said in an interview Monday.
William J. Popejoy, who heads both American Savings and its Irvine-based parent company, Financial Corp. of America, made the estimate as part of his frosty reaction to a meeting Wednesday that will be chaired by Roger Martin, a member of the Federal Home Loan Bank Board, the primary regulatory agency for the nation's 3,200 savings and loans.
Karl Hoyle, a spokesman for the bank board, confirmed that "at least eight" savings and loans in California have been invited to the meeting with Martin to discuss their interest in buying American Savings' branches. Popejoy estimated that the branches are worth at least $700 million.
Hoyle confirmed that the meeting will take place in Southern California but he declined to say where or what thrifts had been invited. Hoyle termed the meeting a "preliminary" one and indicated that later meetings will be held to accommodate other interested buyers. Hoyle also noted a branch sale is but one of the options the bank board has under study.
The meeting is another in a series of moves by the board to solve the prodigious problems of American Savings, which now has a negative net worth as a result of a $468-million loss in 1987. The bank board has been searching for new capital for American Savings for nearly a year.
The bank board aims to solve American Savings' problems at the least cost to the Federal Savings and Loan Insurance Corp. FSLIC, which is funded by the thrift industry, is the arm of the bank board that insures customer deposits up to $100,000 and incurs the expense when a savings and loan fails.
Though Popejoy threw cold water on the branch-sale idea, such a proposal is sure to receive a warm reception from competitors. American Savings' most valuable asset is its branch structure, which consists of 185 retail offices throughout California and nearly $17 billion in deposits.
Los Angeles County has more American S&L branches, more than 40, than any other California county. Other concentrations are in Orange, Alameda, Santa Clara, Sacramento and San Diego counties.
One major question is how a sale of branches would affect American Savings' other assets, which include an $18-billion portfolio of mortgage-backed securities and several billion dollars worth of unprofitable assets. American Savings, which has total assets of nearly $34 billion, faces large losses on the securities portfolio because its value has dropped as interest rates have risen in the past year.
According to American Savings officials, this is the Achilles heel of what Martin has in mind. Selling the branches would force FSLIC to liquidate the other assets at a great loss.
"The only way to do that would be to put the company into receivership," said David Smith, an American Savings consultant.
"It's the equivalent of a liquidation," Popejoy added, alluding to what is usually the most expensive way to close a financial institution.
American Savings has publicly suggested two other ways to raise capital, both of which might allow the present management to remain in place.
One is a request, made last month, for a $1.5-billion loan assistance package from FSLIC, but no formal proposal has been submitted to the bank board. A second plan, unveiled in November, would segregate the good assets from the bad by breaking up American Savings into four separate subsidiaries.
The breakup plan would cost FSLIC close to $1 billion, but that is still far less than the minimum $2-billion cost of a liquidation estimated by Popejoy.
But if Popejoy and his management team do not like the branch-sale idea, its competitors are thought to be already licking their chops. "We'd love to have their branches in central California and some of the ones they have up north," said one Southern California thrift official who asked not to be identified.
"I would think the American Savings branch system would be of interest to all the major and minor thrifts in California," said Peter Treadway, an analyst for the investment firm of Smith Barney, Harris Upham & Co. in New York.
Salvatore Serrantino, a consultant for California Research Corp. in Santa Monica, said four likely buyers are Home Federal Savings in San Diego, Citicorp Savings in Oakland, First Nationwide Bank in San Francisco and Great Western Bank in Beverly Hills.
"They're the ones that have been most aggressive in developing a retail deposit network," Serrantino said. Officials at those four institutions either declined to comment or could not be reached Monday.