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California Banking Mergers on the Rise

Institutions are targeted by local competitors and national giants. Several factors can persuade shareholders to sell.

August 18, 2003|E. Scott Reckard | Times Staff Writer

Bankers, start your bidding: Sales of California banks are rising again after three years of decline.

Most sellers so far have been banks squeezed by rising technology costs, competition from credit unions and, until recently at least, falling interest rates. All are factors that can convince longtime shareholders it's time to sell.

That's good news to such aggressive acquirers as San Francisco's Bank of the West, which last year bought United California Bank for $2.4 billion.

With financial backing from parent BNP Paribas, France's largest bank, Bank of the West "continues to have a strong appetite for acquisitions," said Vice Chairman Stephen Glenn, the bank's senior officer in Los Angeles. Even after recent interest rate increases, it's still relatively cheap to finance deals, he noted.

Though Bank of the West is focused on buying larger banks, most recent deals have been for community banks.

Just last week, California Independent Bancorp, owner of the nine-branch Feather River Bank north of Sacramento, agreed to be acquired by Humboldt Bancorp for $80 million in cash and stock. It was the 14th California bank deal announced this year, up from 12 for all of 2002, according to Irvine investment banker Edward Carpenter.

Over the objections of some shareholders, California Independent fended off a hostile $63-million takeover attempt last year, but this year's sweeter offer was irresistible, Chief Executive John I. Jelavich said.

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Little-Bank Blues

Technology needed to comply with banking regulations costs about the same at California Independent, with $378 million in assets, as at a bank three times as large, Jelavich said. He also noted that lending profit has been down because of the sharp drop in interest rates in 2002 and the first half of 2003.

Besides community banks, regional institutions also are being courted aggressively by large players seeking to fill in missing markets or lines of business.

"We're on seven or eight lists" at acquisition-minded banks, acknowledged D. Linn Wiley, chief executive of CVB Financial Corp., an Ontario banking company with $3.5 billion in assets.

CVB, whose chairman is 71-year-old Chino dairyman George A. Borba, owns 33-branch Citizens Business Bank, which has expanded from its Inland Empire base into Orange and Los Angeles counties and the Central Valley.

The bank has entertained suitors ranging from in-state rival UnionBanCal Corp. of San Francisco to Dutch agricultural lender Rabobank Group, which hopes to acquire a series of banks with farm-loan portfolios. Rabobank started the quest last year by purchasing El Centro's VIB Corp., gaining 24 community bank branches from Calexico to Fresno.

So far, CVB stockholders including Borba -- his nearly 6 million shares are worth $120 million at Friday's closing price of $20.10 -- have opted to keep growing the bank themselves. CVB's latest acquisition, its 10th in 10 years, was announced in May: the $15.5-million purchase of Visalia-based Kaweah National Bank, which has four branches.

Other Southland banks in CVB's size range, such as PFF Bancorp in Pomona, also crop up on lists of potential takeover targets. PFF executives couldn't be reached for comment.

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Eyes on Zions

A larger topic of takeover speculation is San Diego-based California Bank & Trust, with 96 offices in 15 counties up and down California. Doyle Arnold, chief financial officer of Zions Bancorporation, the Utah-based owner of California Bank & Trust, declined to comment on the prospect that Zions might be acquired or that it might sell some of its operations.

Another active sector for mergers has been Asian American banks. These include institutions with $3 billion to $5 billion in assets, such as East West Bancorp Inc. in San Marino and San Francisco's UCBH Holdings Inc. Experts believe such buyers as London's HSBC Holdings, whose roots are in Hong Kong and Shanghai, or even San Francisco-based Wells Fargo & Co. eventually will buy one or more of these banks, which are currently very expensive.

Some potential buyers are newcomers pursuing narrow niches. One, wealth-management specialist Boston Private Financial Holdings Inc., is said to be on the prowl in California for institutions catering to the rich. What's more, the deregulation of the financial services industry has put banks on the shopping list of some brokerage firms, insurers and even retailers.

Still, most potential buyers are mainstream players looking to expand existing California operations, including UnionBanCal and Beverly Hills-based City National Corp. Although some at times have been described as targets, they now are generally considered to be in a buying mode.

New York's Citigroup Inc., which paid $5.4 billion last year for California Federal Bank parent Golden State Bancorp, remains interested in California acquisitions, executives said. But it's more likely that Citigroup's next big deal will be in another market, such as the Northeast or Florida, said Citi Chief Operating Officer Robert Willumstad.

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