Central Savings Called a Good Deal for Coast : Acquisition of Troubled S&L; Is Seen Making L.A.-Based Thrift a Major San Diego Player

Savings and loan analysts say Coast Savings and Loan Assn.’s $20-million acquisition of troubled Central Savings and Loan Assn. is a good deal for Coast just about any way you cut it.

The acquisition increases Los Angeles-based Coast’s statewide branches to 139 from 93 and assets to $11.4 billion from $9.7 billion. In one fell swoop, the purchase makes Coast a major presence in the San Diego County market, creating a combined deposit base that ranks third after Home Federal Savings and Loan and Great American First Savings Bank.

The acquisition’s effect on Central employees should be relatively painless, Coast Chairman Ray Martin said at a press conference at Central’s downtown offices Monday. Although Coast expects to close 6 to 10 branches statewide as a result of the consolidation, most of the job reductions will be made through attrition, he said.

Martin said Coast’s risks in taking over Central and all of its loans--including $200 million in non-performing loans--have been minimized. Insisting that Central’s bad loans have been adequately reserved for, Martin said Coast’s $20-million purchase price represents a ceiling on the losses that Coast may incur on unforeseen loan problems or disposition of the real estate securing Central’s non-performing loans.

Central had been under the Federal Home Loan Bank Board’s management consignment program since May, 1985. The FHLBB seized control after a string of Central losses related to its real estate portfolio, hiring Phoenix-based MeraBank to take over management.

Months of Bargaining

Coast’s purchase ended several months of bargaining between Coast and the Federal Savings and Loan Insurance Corp., the government deposit insurance agency that has been operating Central. A big stumbling block in the negotiations was eliminated when FSLIC agreed to “write us a check” that makes Central’s assets equal to its liabilities, Martin said.

The cash coming from FSLIC is “in excess of $250 million,” said one Coast source involved in the purchase who asked not to be identified. Coast officials would not cite a specific figure for FSLIC’s cash infusion, saying the S&L;’s net worth, which as of last September was a negative $210 million, is still being assayed.

Figured as a percentage of deposits acquired, the $20-million purchase price is a bargain, said Robert Hunt, Coast’s chief financial officer. The purchase price is equivalent to 1.5% of deposits acquired, compared with the 3% to 5% of typically paid in an acquisition of this kind, Hunt said Monday.

“This leaves Coast as one of the big California S&L; survivors of the late 1980s and able to compete more effectively with greater economies of operations,” said Allan Bortel, an S&L; analyst with Shearson Lehman Brothers in San Francisco.

FSLIC is also indemnifying Coast management against possible future litigation or unseen bad loan “surprises,” Martin said. Coast shareholders will suffer no dilution, Martin said.

‘Very Profitable’

Bortel said the acquisition should prove “very profitable” for Coast shareholders, generating 90 cents to $1 per share in additional earnings by 1989. He said it also puts Coast on a much more solid footing in San Diego County, where Coast in recent years has been faced with the alternative of either folding up its tent or financing a costly expansion.

Hunt said Coast’s goal is to derive 90 cents to $1 per share in additional earnings from the Central acquisition over the next two or three years. Those earnings would mean a 1% return on the $1.7 billion in assets being acquired.

Coast’s 11 San Diego County branches and Central’s 18 will give the consolidated Coast 29 local branches, Coast spokeswoman Priscilla Finch said. The new thrift now accounts for about 5.8% of the $16 billion in total county deposits in savings institutions, she said.

Although the $20 million being paid by Coast will be placed in a reserve account for non-performing loans, the S&L; can treat the investment as an acquisition cost amortizable over as long as 40 years, not as a current expense to be taken all in one year, Hunt said, a more favorable treatment for shareholders.

“I think it’s a good deal for Coast,” said Gerry Findley, a Brea-based banking consultant and editor of the Findley Reports bank rating newsletter. “I think Central has worked through most of its problems. (MeraBank’s) George Leonard has done a good job of bringing down (Central’s) problem loans to a base where Coast could predict what the outcome would be.”