BankAmerica pulls out stops in bid to take over Seafirst
How serious is the BankAmerica about ensuring that it's $400 million bid for the troubled Seafirst Corporation of Seattle goes through? Serious enough to consider asking Paul A. Volcker, chairman of the Federal Reserve Board, to put pressure on the chairman of Rainier Bancorporation, a competing bank holding company in the state of Washington, to not make a fuss over the huge California bank crossing state lines to undertake the largest banking merger ever.
Stephen T. McLin, BankAmerica's senior vice-president and director of strategic planning, has considered asking Mr. Volcker or C.T. Conover, comptroller of the currency, to talk to Robert Truax, the Rainier chairman. United Press International reported that Rainier, in a press conference in Seattle, had said it was weighing the possiblity of bringing a lawsuit to challenge the constitutionality of Washington state legislation permitting the interstate merger. Such a lawsuit, Mr. McLin indicated, would make life even more difficult for Seafirst.
Seafirst, with a considerable amount of short-term debt outstanding, has been having difficulty borrowing money in the Euromarkets and from other banks in the Fed funds market. Fed funds are loans banks make to each other overnight; Eurodollar markets are US dollar deposits traded in Europe. Seafirst's inability to borrow short-term funds, Mr. McLin indicated, was giving the bank a serious liquidity problem. Faced with a possible lawsuit from Rainier, Mr. McLin suggested to another bank executive that they call Mr. Volcker in an effort to convince Rainier's chairman, Mr. Truax, not to file a lawsuit. However, the bank has apparently decided to wait to see if Rainier actually goes ahead with its lawsuit before involving the Fed chairman.
In Seattle, Bruce A. Koppe, general counsel for Rainier Bancorporation, commented, ''It's very difficult to tell what Seafirst's condition is.'' He said the comptroller of the currency had ''lost a lot of credibility'' in the state of Washington over calls said to have been made to the governor suggesting that, if legislation permitting the BankAmerica bailout did not take place, Seafirst would face a run on its assets.
''It was really an irresponsible thing to do,'' he said in an interview. ''There is a growing feeling in Olympia (the state capital) that we've been had.''
BankAmerica's Mr. McLin, in an interview, said the main reason Rainier opposes the merger is because, ''They're afraid of us.'' Mr. Koppe responded: ''What it all boils down to is that interstate banking is the wave of the future and to allow it on a . . . highly discriminatory basis is not fair.''
He added, ''I'm not certain that Seafirst looked at all the alternatives open to it.'' For example, he said, Rainier would have been willing to spend $1 billion to buy some of Seafirst's assets. ''That would have given them some capital.''
BankAmerica also indicated that Seafirst may still have some bad loans in its portfolio that haven't been written off. In an interview, Mr. McLin said, ''We will take a hard look at the loans in the portfolio right before we close, and there will probably be additional write-offs prior to the closing (of the merger).''
Currently, Seafirst has $897 million in nonperforming loans, or 12 percent of its $7.4 billion loan portfolio.
Furthermore, James B. Wiesler, vice chairman of the retail-banking division of BankAmerica, said in an interview that the California bank would cut back on Seafirst's staff if the merger occurred, since the two banks would have some duplicate functions. He pointed out that Seafirst had already pared back its staff, which would ''make our job easier.''
Mr. McLin also said he expected Seafirst, as a subsidiary of BankAmerica, would break even in 1984 and be profitable in 1985. In the first quarter of this year, Seafirst's principal unit, Seattle-First National Bank, posted a loss of $ 133 million. There was concern at the bank when the loss was reported that it would cause a run on assets. Most of the losses have resulted from write-offs of bad loans to the energy sector.
''If the price of oil had gone to $40 a barrel,'' Mr. McLin said, ''they would have looked like heroes.''
Seafirst, like Chase Manhattan Bank and Continental Illinois, bought a significant number of energy-related loans from the Penn Square Bank. Seafirst bought over $400 million in loans from Penn Square, which went bankrupt last year. However, Seafirst also courted the oil men itself and still has an energy loan portfolio of $1.1 billion. Mr. McLin said one former senior officer of Seafirst had made $400 million in energy loans. That officer, he said, was no longer with Seafirst.
The BankAmerica was first approached in February by Salomon Brothers, the investment-banking company representing Seafirst. Mr. McLin told BankAmerica's investment banking firm, Goldman Sachs, he was interested in putting together a financial package that would give Seafirst a cushion to protect its shareholders from risk.
Thus the bank put together a package that converts each share of Seafirst common stock into cash and securities consisting of $7.70 in cash and 0.3 of a share of nonvoting Bank of America preferred stock with a value of $25 a share. This has a total value of about $250 million. In addition, BankAmerica agreed to add $150 million in new capital to the bank once the merger took place.
Wall Street analysts generally reacted to the merger positively. Lawrence Fuller, banking analyst for Drexel Burnham Lambert in New York, said: ''From the standpoint of the Bank of America this is a very good deal.'' He noted that BankAmerica is paying $250 million for a company that has 40 percent of the retail banking business in the state of Washington. Since BankAmerica is primarily in the retail business in California, he says it will probably feel comfortable with this acquisition. ''This is an enormously valuable franchise,'' he adds, giving BankAmerica sudden business relationships with many customers.
A key question analysts raise is: How many people have defected from Seafirst since its widely publicized problems? Mr. Wiesler indicated a ''significant'' number of executives had left the bank. This, he said, ''argued for fast action on the takeover proposal.''