Survival Factor Behind Ahmanson’s Surrender

H.F. Ahmanson & Co.’s announcement Tuesday that it would sell its 109-year-old business to its chief rival was the all but inevitable aftermath of a battle it lost last spring, experts say.

Hostile takeovers are rare in banking because bank franchises are too fragile for such rough treatment. Ask Wells Fargo & Co., which has had trouble hanging on to customers of First Interstate Bancorp after its nasty 1996 takeover.

That only goes to show how high Ahmanson, the Irwindale-based parent of Home Savings of America, thought the stakes were last year when it tried to prevent the merger of Washington Mutual and Great Western Financial Corp.

From Ahmanson’s perspective, it was life and death.

Ahmanson Chairman Charles R. Rinehart told reporters Tuesday that he has long understood that size is a survival issue in his industry. Economies of scale determine who can afford the huge technology and marketing investments it takes to compete against such giants as BankAmerica and Merrill Lynch.

“A lot of the rapid consolidation we’re seeing now is something that should have proceeded a decade ago,” said Bert Ely, a Virginia-based analyst.

There is room for small banks offering specialized products or catering to a regional clientele, experts say, but there is little future for a mid-size mass-market institution, even if it’s the nation’s second-largest savings and loan.

It was not until last month that Rinehart concluded that Ahmanson was, as he put it, not going to be a “consolidator” but a “consolidatee.”

But once he came to that realization, Rinehart moved quickly and decisively.

On March 4, he phoned Washington Mutual Chief Executive Kerry K. Killinger and asked for an offer. The two rivals had chatted informally in January at a Seattle club called the Ruins after a federal regulatory meeting. There was no merger talk then, but it broke the ice, Killinger said.

Both men were determined to keep the talks secret, so each brought only his top three executives into the circle, Killinger said.

In the days following, Rinehart and Killinger held some face-to-face negotiations at the Doubletree Inn in Pasadena, said a source close to the deal. The Ahmanson team referred to Washington Mutual by the code word “Mariner,” for the company’s hometown Seattle Mariners baseball team, the source said.

After the major issues had been settled, executives, lawyers and investment bankers from both sides got together last Thursday in the downtown Los Angeles offices of Ahmanson’s law firm, Sullivan & Cromwell. Those meetings lasted through the weekend and concluded with an agreement Monday.

Coincidentally, the talks that will put an end to Ahmanson occurred only a few blocks from 4th and Hill streets, where the company began in 1889 with the founding of Ahmanson’s predecessor, Home Investment Building & Loan Co.

Analyst Thomas Theurkauf of Keefe Bruyette & Woods praised Rinehart for the deal’s timing and pricing. The price of about 20 times Ahmanson’s earnings is nearly double what savings and loans were fetching two years ago, Theurkauf said.

The timing also was critical, he said, since California’s robust economy will make finding work easier for the thousands of employees who will lose their jobs in the deal.

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Hot Stocks

How major California S&L; stocks fared Tuesday:

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S&L; Tuesday close Change Ahmanson $77.88 +$12.38 Golden State 38.81 +2.94 Golden West 97.00 +1.75 Wash. Mutual 72.94 +1.19 Downey Savings 30.63 +0.94

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Source: Times research