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Financial Firms Revive Buying Spree

Acquisitions: Two Orange County companies are being swallowed--Western Bancorp and Long Beach Financial--for nearly $1.3 billion total.


Two of the nation's largest financial institutions resumed their California buying sprees Wednesday, announcing separate acquisitions of two Orange County companies worth a total of nearly $1.3 billion and proving that the state remains one of the hottest banking markets in the country.

U.S. Bancorp, the nation's 13th-largest bank, said it would pay about $900 million in stock to buy Newport Beach-based Western Bancorp, parent of Santa Monica Bank and Southern California Bank.

And Washington Mutual, the nation's biggest thrift, confirmed its plans to pay $350 million for Orange-based Long Beach Financial Corp., a mortgage lender targeting borrowers with bad credit.

"California is a place we want to be," said Richard Zona, vice chairman at U.S. Bancorp. "We love the growth and demographics of Southern California."

Orange County has been getting more than its fair share of the interest. Earlier this year, GMAC Corp. acquired Costa Mesa-based DiTech Funding Corp.. And last year, U.S. Bancorp bought a 19% stake in Irvine subprime lender New Century Financial Corp.

The deals are more evidence that the race among financial heavyweights to boost their market share in California is not slowing down, though attention is shifting from mega-mergers between giants to acquisitions of small and mid-sized institutions.

"There aren't that many big banks left as possible partners," said Les Biller, chief operating officer at San Francisco-based Wells Fargo Corp., which recently merged with Norwest Corp. He said Wells Fargo is now turning its acquisition sights toward smaller California banks.

Mega-mergers in recent years have swallowed some of the best-known banks in California. NationsBank bought Bank of America; Wells Fargo acquired First Interstate Bancorp before it was bought by Norwest; Washington Mutual snapped up American Savings, Great Western Bank and Home Savings of America.

That's left California Federal Bank as the state's largest remaining independent financial institution. However, the company's parent, San Francisco-based Golden State Bancorp, said last week that it expects to be sold soon.

For U.S. Bancorp Chairman John F. Grundhofer, the Western acquisition marks a homecoming of sorts. For years, the Southern California native--who built his career at Wells Fargo--has been trying unsuccessfully to partner with a large California bank. Now Grundhofer has set his sights on smaller fish.

The offer for Western Bancorp, a fast-growing business bank with 31 branches and $2.5 billion in assets, would give U.S. Bancorp its first foothold in Southern California. Minneapolis-based U.S. Bancorp, which has $75 billion in assets, is simultaneously negotiating to buy San Diego-based Bank of Commerce. .

Combined with existing branches in Northern California, the pending deals would give U.S. Bancorp 130 branches statewide.

The purchase price--which represents a 30% premium over Tuesday's closing share price--would deliver an attractive payoff for Western stockholders. Just three years ago, the bank began as a tiny, troubled Orange County lender with $50 million in assets. Through aggressive acquisitions, Western Chief Executive Matthew Wagner and San Diego investor John Eggemeyer, a director and a 12% stakeholder, turned the company into the largest commercial bank headquartered in Orange County.

The company has 1,000 employees, mostly in Orange and Los Angeles counties. Wagner, a former executive at U.S. Bancorp, has decided not to remain with the company. David Rainer, president of Western's Santa Monica Bank, will serve as president for U.S. Bancorp's operations in Southern California.

There are no plans to close any branches, though some administrative employees may be laid off, Zona said. U.S. Bancorp hopes to cut Western's expenses by about $21 million a year.

Western's Santa Monica Bank and Southern California Bank branches would be renamed U.S. Bank early next year. The deal is expected to close by the fourth quarter, subject to shareholder and regulatory approval.

Western shares rose $1.31 to close at $40.31 on Nasdaq. U.S. Bancorp slipped $1.81 to $32.56 on the New York Stock Exchange.

For Washington Mutual, the acquisition of Long Beach Financial allows the Seattle-based thrift to break into an entirely new business: sub-prime lending.

Long Beach Financial, a former savings and loan, now is one of the nation's most successful independent mortgage lenders specializing in high-cost loans to borrowers with a history of late payments, bankruptcy or other credit blemishes.

Though banks and thrifts once turned up their noses at the lending niche, today they are jumping into the sub-prime sector, where profit margins can be five times higher than those of traditional mortgages. Other large lenders that have made a push recently into sub-prime lending include Norwest, Chase Manhattan and Countrywide Home Loans.

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