Wall Street Bankers Hired to Find Help for Mercury

Mercury Savings & Loan has hired Merrill Lynch Capital Markets as its lead investment banker to find ways to improve the Huntington Beach thrift’s capital, including a possible sale of the institution.

Mercury Chairman Leonard Shane said the thrift will need more capital to meet higher levels that federal regulators soon will require under the new law intended to bail out the industry’s deposit insurance system.

“I look at (hiring Merrill Lynch) as a positive step,” he said. “As the new law takes effect, it’s proper to get a first-class national investment banker to lead this effort to find more capital.”

Shane, co-founder and only chairman in the S&L;’s 25-year history, said he would prefer not to sell Mercury but acknowledged that it is an option.

To meet new capital requirements, Shane said Mercury will lower its assets to $2 billion, sell its Northern California branches and eliminate dividends.

But industry analysts say the S&L; needs more help than that, especially after posting a $1.5-million net loss for the first six months on top of a $13.8-million loss last year. Financial results for the third quarter have not been released yet.

Analysts have said for some time that Shane would have to sell Mercury to raise the cash the institution needs. Montgomery Securities in San Francisco was Mercury’s investment banker for the last 18 months, but analysts said they think Shane was disappointed with the results and decided to hire a major Wall Street investment firm.

Montgomery remains as a secondary investment adviser.

“It’s unfortunate for Mercury’s shareholders because they could have got a lot more (in a sale) a year or two ago when there were offers made,” said Michael Abrahams, an industry analyst for Bateman Eichler, Hill Richards in Los Angeles. “But management has been reticent to sell it. Shane thought it was worth more than the offers he got at the time.”

Mercury’s tangible capital--one of the new measures of capital adequacy--is only 0.75% of its assets, well below the 1.5% level the new law requires, Abrahams said. The new capital level may go into effect as early as January and will be doubled in five years.

Shane, whose family controls 15% of the S&L;, would not discuss capital figures.

Shane has said he would like to retire soon. Several of his friends said they view a Jan. 21 dinner honoring his support of Ben-Gurion University of the Negev in Israel as a retirement tribute as well.