Washington Mutual Inc. said Monday it will buy American Savings Bank for $1.2 billion in stock in a deal that gives the Seattle-based bank a major presence in a revived California marketplace.
The merger with American and its parent, Keystone Holdings Inc., creates the nation’s 24th largest bank, with more than $42 billion in assets and offices in seven Western states.
It also positions the bank to pursue further thrift and commercial bank acquisitions in California, said Kerry Killinger, Washington Mutual’s chairman, president and chief executive officer.
“I think we are going to be a big competitive force in California,” Killinger said. “We see further consolidation in California banks and thrifts and we anticipate being a major part of that consolidation activity.”
Washington Mutual is the leading home mortgage provider in Washington and Oregon. American, which will retain its name after the deal is completed, is No. 2 in California.
Washington Mutual’s stock rose $4.87-1/2 per share to $35 in heavy trading on the Nasdaq Stock Market.
“The stock market obviously thinks this is a good deal for Washington Mutual and I happen to agree,” said David Hochstim, an equity analyst for Bear Stearns & Co. in New York. “It is giving Washington Mutual substantial presence in California and a platform from which they can do other creative deals.”
The purchase is the latest fallout from the costly S&L; failures of the 1980s.
Keystone Holdings Inc., a holding company formed by a group led by Texas billionaire Robert M. Bass, acquired Irvine-based American in 1988 after the collapse of Financial Corp. of America in what was the nation’s largest and costliest thrift failure at the time.
Meeting with financial analysts in New York, Bass described American Savings as “a good investment going forward.” “We wanted a transaction that would allow us to remain as significant shareholders in an even stronger, thriving, well-positioned financial institution,” Bass said.
The Federal Deposit Insurance Corp., which acquired a stake in American as a result of the failure of its former owner, will wind up a part owner but is expected to sell its shares soon after the deal is completed, the companies said.
Washington Mutual will issue 48 million shares of common stock in the transaction. Keystone owners and the FDIC initially will get 40 million shares. The other 8 million shares will be held in escrow pending the outcome of Keystone’s lawsuit against the federal government.
The suit challenges changes in federal accounting rules that affected the way Keystone could write off “goodwill” assets stemming from the bailout of American.
Killinger said Washington Mutual had been looking at opportunities to expand in California for about two years. American was attractive because it has a large number of branches - 158 banking offices and 61 loan offices in California, plus one loan office in Arizona.
Washington Mutual has assets of $22.3 billion and more than 300 offices in Washington, Oregon, Idaho, Utah and Montana.