Downey Savings & Loan Assn. said Friday that it has hired New York investment banking firm Lehman Bros. for financial advice, prompting speculation that the company is going to be sold and driving up its stock price by nearly 12%.
A profitable savings and loan with a successful real estate development subsidiary, Downey said that Lehman is now studying a "range of strategic alternatives" for ways to reorganize its operations to "enhance shareholder value."
The disclosure, which came a day after rumors swirled on Wall Street about the company's plans, pushed up Downey's stock $2.25 to $21.625 in New York Stock Exchange trading, its highest close in three years.
"Shareholders are telling the market that they'd like to see (the entire company) sold," said Campbell Chaney, a San Francisco-based savings and loan analyst with Dakin Securities. "And this is a very salable asset."
But Downey Chief Executive Robert Kemper said in a telephone interview that it is too early to say what, if anything, is going to be sold. "We've hired Lehman Brothers to help us determine the best use of our capital from a shareholders' point of view," Kemper said. "No timetable has been set."
Unlike hundreds of failed thrifts, Downey is both alive and quite healthy. It earned $41.9 million in 1992.
The institution, which is headquartered in Newport Beach, "is in the rare position of being able to chart its own course," said Ed Carpenter, a Santa Ana-based banking consultant. With $3.5 billion in assets and 52 branches in California, Downey "has some real value," Carpenter said. "It is one of the more attractive institutions."
But the S&L, Carpenter said, either needs to grow into a regional power to thrive or it needs to return some of its assets to shareholders.
Downey executives recognize that the thrift is at a crossroads because of "the rapidly changing nature of the financial services industry and the regulatory environment," said Downey Chairman Maurice L. McAlister. Prior to 1989, when federal regulators pushed savings and loans to divest most of their real estate holdings, Downey had been a leading shopping center developer in California and Arizona.
When the regulations changed, Downey put most of its projects into a real estate development subsidiary and began concentrating on making mortgage loans. But the company still must decide what to do with $100 million in capital now tied up in the real estate subsidiary.
"Maybe for Downey, the best use of shareholder capital is to get out of real estate altogether," said one Orange County real estate broker.
Or, as analyst Chaney suggested, it might be time for Downey to consider selling itself to a larger competitor: "The market is looking at an acquisition of the company, not carving it up and selling just the real estate part."
Earlier this month, Downey announced the sudden departure of F. Anthony Kurtz, the president brought in two years ago to address federal regulators' concerns about the thrift's aging senior executives. Kurtz, who was 50 when hired, and Kemper, then 62, were seen as logical successors to Downey co-founders McAlister and Gerald H. McQuarrie. McQuarrie, who retired as chief executive in 1991, recently died. McAlister, now 67, gave up the president's position but remains as chairman.