Pending Law May Spur L.A. Bank Consolidation Wave.

Hasn't Los Angeles gone through enough bank consolidation? Not if the long-awaited bank reform bill becomes law.

Some analysts and bank officials anticipate another round of local acquisitions as a result of the new legislation that will effectively dismantle the Glass-Steagal Act of 1933, which prohibited commercial banks, investment banks and insurance companies from engaging in each others' businesses.

As such, the new bill will open the door for the formation of financial supermarkets that can offer their customers a full range of financial products.

The bill, which as of late last week was still awaiting final votes by the House and Senate, is expected to mostly impact national retail banking and insurance companies. But it also would lift restrictions on smaller, niche players that may want to offer their clients a broader choice of services.

"The focus has been mainly on changes at the national level," said Benson Porter, senior vice president with Washington Mutual Inc. "But it creates opportunities for the entire industry, great and small, and you might see more deals involving smaller, regional banks and securities brokerages."

Dan Mathis, president and chief operating officer for Inglewood-based Imperial Bank, anticipates that sooner or later, regional financial supermarkets will emerge in addition to the large national ones.

"We have been working on various scenarios in anticipation of this bill," Mathis said. "It will make it much easier for regional banks to enter into investment banking. For example, we could get involved in the placing of debt or equity, which may be quite interesting for us since we have a large number of business customers."

Although Imperial Bank, like many other commercial banks, already is active in the securities brokerage business through a subsidiary, the new legislation would make it possible for the bank to underwrite securities and insurance directly. Mathis believes there will be interest from his business customers for a one-stop financial services provider.

"Clearly, the relationship between a business owner and a bank is very strong," he said. "They depend on us for credit and there is a lot of mutual trust, which goes a long way when talking about other products. Of course, the product has to be attractive to the customer and it has to be competitive."

Other regional banks also are expressing cautious optimism about the new legislation, even if they are reserved about their immediate plans.

"This bill creates some very interesting and very important opportunities, but we're not poised to take advantage of them at this point," said Dunson Cheng, chairman and president of Cathay Bank, a local Chinese-American business bank. "Maybe in the long term we will."

Many observers believe, however, that the spate of corporate takeovers that has left Los Angeles pretty much depleted of large, locally based financial services' companies will mute the impact of the bill on the local landscape.

"It is hard to imagine that there will be any major deals here," said Jourdi de Werd, managing director with investment bank Greif & Co. "The local banks do not have extensive enough branch networks to make them attractive as takeover targets, and there are no sizable investment banks here."

Whatever takeovers do take place will be driven by the desire to reach more customers. Thus, it may be attractive for a big securities or insurance firm to acquire a commercial bank with substantial retail operations and a large number of branches through which to sell its products. Because most of the remaining local banks in Los Angeles are niche banks, focusing on specific business segments, they are not obvious candidates for this kind of takeover.

Century City-based SunAmerica Inc. is one local operation that has been rumored as a likely candidate to merge with or acquire a retail bank through its parent company, American International Group Inc. But Chairman and Chief Executive Eli Broad dismisses the possibility of an expansion into retail banking.

"With a market cap of $150 billion, AIG could buy a major bank," Broad said. "But the branch retail system, which was considered one of a bank's most important assets 10 years ago, has become a lot less significant now, and distribution channels will likely be much different in another 10 years with the advent of the Internet and individual financial planners."

Because SunAmerica's products are already available through many retail banks and investment banks, such as Merrill Lynch & Co., the need for SunAmerica to either acquire or develop its own retail banking operation is not very compelling, Broad said.

Neither are other local securities and insurance firms chomping at the bit to diversify into commercial banking activities.

One of the largest local insurance companies, Farmers Group Inc., a subsidiary of Zurich Financial Services Group, is more than a little cautious about the prospects of entering into commercial banking.

"The two industries are still far apart from each other," said Farmers Group spokesman Kenneth Adams. "The insurance industry is pretty slow to change, and we are most likely to wait and see how others work out the issues arising from consolidation. We're obviously concerned about cultural differences, because the last thing you want to do is to try to work these out while trying run your business."