In a bailout that will cost an estimated $565 million, federal regulators approved Tuesday the proposed acquisition of healthy Western Federal Savings & Loan Assn. of Marina del Rey and insolvent Bell Savings & Loan Assn. of San Mateo, Calif., by an investment group headed by former Treasury Secretary William E. Simon.
To complete the purchase of the two S&Ls, the investment group, DP Holdings of San Francisco, intends to raise up to $207.5 million in capital through the sale of stock and debt. The Federal Home Loan Bank Board, which regulates thrifts, in its announcement Tuesday called the financing "a near-record amount of new capital."
But the assistance package for the merger pales beside the hefty $5.5-billion rescue of eight insolvent Texas thrifts announced Friday by federal regulators.
DP Holdings is primarily financed by Simon and operated by Preston Martin, a former vice chairman of the Federal Reserve Board. Since 1986, other Simon-led investment groups have bought savings and loan firms in California and Hawaii, a controlling interest in two commercial banks, a real estate investment firm, a merchant banking firm, and have three joint ventures in the home building industry.
The merged thrifts will be operated under the Western Federal name, FHLBB spokesman David Loveday said. Western Federal has assets of $2.5 billion and 26 offices while Bell has assets of $953.5 million in regulatory capital with 18 offices. The deal is expected to close by Sept. 23.
The Federal Savings and Loan Insurance Corp. will assist the acquisition with an approximately $500 million note, an interest-bearing IOU that the bank board's insurance arm has been using lately in an attempt to preserve its cash.
FSLIC also will purchase $15 million of preferred stock of DP Holdings and will receive 25% of DP's common stock. No taxpayer funds are involved in the assistance package, Loveday said.
In addition, FSLIC will split future losses on certain assets with DP Holdings on an 80%-20% basis. If DP Holdings absorbs $35 million in losses, FSLIC will then be responsible for 100% of the losses.
The agency will receive 80% of the gains from the sale of certain assets and will guarantee DP Holdings a certain yield on all covered assets, Loveday said.
FSLIC also is indemnifying DP Holdings against any claims, undisclosed liabilities or challenges to the transaction that have not been reserved for and will buy various loan participations from Bell at net book value before the acquisition.
"We feel DP Holdings will bring in an expertise," Loveday said. "When they combine the two with our assistance, they're going to have a strong institution."
Donald Crowley, a banking analyst with Keefe, Bruyette & Woods in San Francisco, said the merger with Bell "helps to make the acquisition of Western more compelling."
Had to Change Plans
"In putting the two together they will be able to take advantage of the tax loss position of Bell Savings . . . which would help shelter those earnings" of Western Federal, he said.
For the year ended June 30, Western Federal reported net income of $17.2 million. Simon first announced plans to buy Western Federal a year ago, but revealed in March that the group needed new financing as a result of the financial problems of the Australian company, Ariadne, that was originally going to put up the money for the deal.
Bell Savings, which got in trouble after making several speculative commercial construction and land loans, was put in receivership and placed in FHLBB's management consignment program in July, 1985.