Employees at Security Pacific and Bank of America await reverberations from merger.

Dominating the local banking news -- and a major topic among bankers nationally -- is the upcoming merger of Los Angeles County's biggest bank, Security Pacific Corp., with San Francisco's BankAmerica Corp.

Quelling, for the moment, rumors that real estate losses at Security Pacific might spur BankAmerica to abandon the deal, BankAmerica officials re-emphasized their desire to continue the merger even after Security Pacific recorded one of its largest losses ever -- $508 million -- in the third quarter.

"BankAmerica has advised Security Pacific that the results reported by Security Pacific for the third quarter regarding the provision for credit losses, net credit losses, and non-performing assets, do not alter BankAmerica's assessment of the overall benefits of the planned merger," said Security Pacific Chief Executive Robert Smith in the company's earnings release. "Both companies are proceeding with the regulatory filings necessary to effectuate the merger."

A large component of Security Pacific's losses came from housecleaning activities in preparation for the merger, but also from a rising rate of non-performing loans and leases, which increased from 4.2 percent at June 30 to 4.5 percent at Sept. 30 as a percentage of period-end loans.

Hanging over workers at both institutions like the sword of Damocles is the question of who will be cut and who will remain. An estimated 15,000 to 20,000 workers are expected to be cut from the institutions, with Los Angeles expected to suffer a disproportionate blow because of the large number of employees at Security Pacific's headquarters here.

Those cuts are being echoed throughout financial institutions in Los Angeles County, where 10,000 jobs are expected to be lost from 1990 to 1992 alone, according to estimates of the Los Angeles County Economic Development Corp.

The cause of the cuts is streamlining and consolidation at institutions, and few analysts expect an employment expansion in the banking sector even after the recession resides.

"The industry has to get streamlined and dramatically upgrade its quality of service if it is going to maintain its market share -- which is declining," said Sal Serrantino, president of the Santa Monica-based bank consulting group California Research Corp.

Speculation continues regarding the ultimate fate of First Interstate Bancorp. While First Interstate officials recently slashed 3,500 employees -- including 409 in Los Angeles County -- and consolidated operations in a number of states in an effort to reduce expenses and improve efficiency, analysts still predict that the bank will eventually be merged into one of several banks seeking to become national in scope.

A list recently prepared by Wells Fargo Bank Chairman Carl Reichardt ranked First Interstate No. 1 among institutions his bank would like to acquire.

Were that to happen, Beverly Hills-based City National Bank, with assets of $4.8 billion -- compared to $80.4 billion for Security and $50.3 billion for First Interstate -- would become the largest bank headquartered in Los Angeles County.

City National recently surprised analysts by reporting a slight profit for the first nine months of the year, despite an earlier company prediction that it would record a loss.

The company did not, however, reverse its decision to withhold its dividend, the first time the bank has done so in 28 years.

Los Angeles-based Imperial Bank, the other large Los Angeles County-based bank, has managed to stay in the black despite rising non-performing assets and reduced earnings.

Nationwide trends are also affecting the county's banks. Bankers are also being far more choosy about whom they lend to because of federal pressure to avoid potentially risky loans.

And uncertainty pervades the air as to what, if any, fundamental changes will be made at the federal level to the types of business banks can enter, the level and funding of deposit insurance, and capital requirements. More than a dozen bills addressing the issues are winding their ways through different congressional committees with often conflicting proposals.

Among the S&Ls, most institutions are reducing assets in an attempt to cope with rising loan losses.

A radical cost cutting program instituted in the beginning of the year by giant Glendale Federal Bank yielded its first fruits in net income at Sept. 30, the company's first 1992 fiscal quarter.

The S&L reported first quarter profits of $17.1 million, as compared to heavy losses in earlier quarters, largely because of a $37.8 million in savings in the quarter brought about by a downsizing program.

The news was not as bright at the county's fourth largest S&L, CalFed, where a harsh cost-cutting program was not able to overcome continuing losses in the S&L's commercial and multi-family real estate loan portfolio.

The S&L lost $49.5 million in the quarter and announced that it was uncertain whether it would be able to maintain capital -- its cushion against claims by depositors -- in compliance with federal minimum ratios.

While not fatal, falling below the minimums would bring federal intervention in the thrift's management and would increase the likelihood that the S&L will seek a buyer or a merger partner.

Beverly Hills-based Great Western Bank, Los Angeles County's second largest S&L with assets of $39.5 billion, was an exception to the cost-cutting trend, continuing its expansion into Florida with an Oct. 11 acquisition of a failed institution.

The purchase of $968.1 million of assets of First of Orlando, a failed S&L, was Great Western's sixth acquisition of a Florida institution or its branches in the last 16 months.

The search for capital has led one local S&L, Pasadena-based Century Federal Savings & Loan, one of the county's few remaining mutual institutions -- where depositors own the institution -- to convert to a shareholder-owned organization. The S&L's members approved the conversion this October. The conversion became effective Oct. 31.

Meanwhile, the skeleton of high-flying S&L Columbia Savings & Loan was acquired in September by Stockton-based American Savings Bank for a tiny $6.1 million. The cost of bailing out Columbia's depositors will cost taxpayers $1.2 billion.

In stark contrast to the retrenchment at most S&Ls, FirstFed Financial Corp. of Santa Monica, and Pomona-based Pomona First Federal Savings & Loan Association and some others have taken advantage of their own good loan quality and the rising problems of others to boost their market shares.

The continuing recession has been a boon to fixed rate mortgage lenders, such as mortgage bankers, whose fixed-rate products have been used to lock in lower interest rates on mortgages.

That has meant booming profits for Pasadena-based Countrywide Credit Industries, one of the nation's largest independent mortgage bankers, whose officers predict that mortgage loans will increase from $4 billion in 1990 to $11 billion in 1991.