CALIFORNIA S&LS LOOKING ROSY : BUYERS NOTE IMPROVING ECONOMY.

Byline: Dawn Yoshitake Daily News Staff Writer

California has racked up two multibillion-dollar S&L mergers in the past two weeks, and analysts say there might be more deals to come as the state's economy improves and the financial industry consolidates.

``The concern over the persistent recession now appears to be over and exposure to (loan) losses is reduced,'' said Gregory Mitchell, senior vice president of Hovde Financial Inc. in Washington, D.C., a firm that handles S&L mergers and acquisitions. ``It's likely that institutions will now take a new look at California.''

California S&Ls frequently cited as potential acquisition targets include Glendale Federal Bank in Glendale, Great Western Financial Corp. in Chatsworth and Coast Savings Financial Inc. in Los Angeles.

Officials with Glendale Federal and Great Western declined to comment on such speculation. And officials with Coast did not return phone calls.

Out-of-state institutions that are commonly mentioned as buyers of California institutions include Norwest Corp., NationsBank Corp., First Bank System Inc. and Banc One Corp., said Mitchell.

``These are some reasonable buyers, although it's questionable when they'll come into the state in a big way,'' he said.

Other potential buyers already are here.

Mitchell noted that small mutual associations, owned by depositors, are going public through stock offerings. This leaves the institutions flush with cash and gives them the capital to make acquisitions, he noted.

And within the last couple of months, more thrifts have bought banks, Mitchell said. Cal Fed, for example, recently announced plans to acquire First Citizens Bank in Sherman Oaks.

Mitchell said mergers began in the Southwest, moved through the Northeast, Southeast, Midwest and are now fast approaching California.

``California is now catching up to the rest of the nation,'' said Paul Schosberg, president of America's Community Bankers in Washington, D.C.

S&L mergers nationwide are being driven by a desire to increase growth and earnings through acquisitions, rather than building upon the traditional business of making home loans.

``It's difficult in the current environment to generate new loan growth . . . and that leads to an earnings decline,'' said Mitchell.

Giant mortgage lenders like Countrywide Credit Industries in Pasadena have made traditional home lending more difficult for S&Ls, Mitchell said.

Meanwhile, a shift in the California economy has helped kick-start an interest in the state's thrifts. Thus, Los Angeles-based Cal Fed Bancorp Inc. has been acquired in a $1.2 billion cash deal with First Nationwide Bank of San Francisco, and American Savings Bank of Irvine was purchased in a $1.4 billion stock transaction with Washington Mutual Inc. of Seattle.

Nationwide, S&L mergers and acquisitions this year appear to be keeping pace with last year. And the deals are with larger institutions and yield a richer price than in 1995.

But bank deals appear to be slowing down. And the size of the institutions involved are substantially smaller this year than last year - and hence, so are the value of the deals.

``Pricing multiples for banks are higher than thrifts,'' said John Minor, head merger and acquisitions analyst with SNL Securities in Virginia. ``If you look at these acquisitions from a pricing standpoint, the acquirer doesn't have to pay as much for thrifts.''

With the recent thrift mergers, S&L stocks have climbed. Driving up prices are takeover speculation and a recent U.S. Supreme Court ruling that may provide a windfall of cash to S&Ls that have breach-of-contract lawsuits against the government over thrift bailouts.

(A federal judge in Washington, D.C., has set a Jan. 13 trial date to determine what the U.S. government will have to pay Glendale Federal for breach of contract. Glendale Federal's lawsuit stemmed from a 1981 agreement in which the bank S&L relieved the government of a $783 million potential liability by merging with a failing Florida thrift. In exchange, the government promised the thrift it could include the ``goodwill'' created by the merger as capital, to be amortized over 40 years.)

But as stock prices rise, so does the cost to buy.

Mitchell has seen cases where the pool of potential buyers shrinks as an institution's stock price climbs.

With consolidation of banking institutions sweeping across the country, analysts and trade groups predict the industry will be heavily weighted with small, community institutions on one side and large, behemoth banking and S&L organizations on the other.

The S&L industry, which previously has relied on offering home loans, also is moving toward becoming like banks in services and products - such as offering consumer loans, trust services and emphasizing checking accounts.

Companies such as Great Western aggressively have branched into banking at a time when the home loan business is soft. And consumers may find more options for such services as college and car loans, as well as credit cards.

S&Ls also are signing up for banking charters to cut down on fees paid to the federal insurance deposit fund.

This fund, which covers customers' deposits up to $100,000 if an institution fails, charges S&Ls based on a percentage of its total deposit base. Banks, meanwhile, pay an annual flat fee of $2,000 toward their insurance fund.

And as more S&Ls seek banking charters to diversify their services, fewer players will be around to contribute to the pool that pays off the government's S&L bailout bonds.

Schosberg, however, said it's doubtful the government would allow the bonds to go into default. And he noted there is also talk of creating one insurance fund that would include banks and S&Ls, rather than force thrifts to seek a separate charter to get into the banking business.

And will the switch from thrift to banking charter make these institutions a more attractive buy?

``The acquirer can revolutionize the S&L in a matter of months to how they want,'' Schosberg said. ``If there's a strong balance sheet and profits, then buyers will like them.''

CAPTION(S):

Photo, Chart

Photo: (Color) Renee Bernal stands outside Californi a Federal Bank, which has announced plans to buy First Citizens Bank in Sherman Oaks.

Hans Gutknecht/Daily News

Chart: (Color)MERGING CALIFORNIA

Thriff mergers and acquisitions to date this year involve larger institutions than last year. And the dollar value of the deals odne willikelysurpass last year's figures by the end of the year.

Traci Wooden/Daily News