A consolidation of local banks could be on the horizon, according to industry watchers.
The anticipated consolidation comes after years of expansion that opened the door for startup banks that were spurred on by easy fundraising and plentiful money for making loans.
But the market has changed as tightened credit and bad loans become the industry’s new themes.
Whether the market still is big enough to support more than two dozen locally based banks is the question.
Banks weakened by bad loans could be picked up by stronger ones looking to boost market share, observers say.
Federal Money
The government’s Troubled Asset Relief Program is making $250 billion available to banks that could use it for buyouts.
Consolidation already has occurred among some of the biggest names in banking, creating a new power trio that will dominate over the county’s deposits.
The mega deals, if all go through, are: Bank of America Corp.’s acquisition of Merrill Lynch & Co.; Wells Fargo & Co.’s takeover of Wachovia Corp.; and JPMorgan Chase & Co.’s rescue of Washington Mutual Inc.
There are some initial stirrings of consolidation among local banks.
An Irvine-based fund that was set up for acquisitions by industry consultant Ed Car-penter recently bought a majority stake in Irvine’s Plaza Bank.
“Some banks that didn’t quite make it should be targets,” said Glenn Gray, chief executive of Tustin-based Sunwest Bank, which is looking to buy another bank.
Younger banks that haven’t hit their financial goals might be some of the first to look to be bought after their boards become frustrated, he said.
“The economy turned before they could get going,” he said. “Fourth-quarter earnings from banks could be very revealing.”
Some newer banks could look to make acquisitions to build their operations.
First Foundation Bank, part of wealth manager Keller Financial Group in Irvine, opened about a year ago.
It’s applying for federal money that it could use for acquisitions.
“The funds would allow us to build our brand out by buying another bank, or allow us to make new loans,” said Scott Kavanaugh, chief executive of First Foundation.
The bank had $60 million in assets as of June, 30, according to the Federal Deposit Insurance Corp.
Matter of Survival
Costa Mesa-based Commercial Bank of California Chief Executive K.P. “Bala” Balkrishna thinks some troubled local banks might have to be rescued to survive.
Commercial Bank of California could be on the buying end, he said.
“It’s a tough market to raise capital in,” Balkrishna said. “Banks with problems have no other choice other than to be bought.”
Pacific Premier Bank, the county’s second largest with more than $700 million in assets, also is looking to buy.
“We’ve always had acquisitions as part of our strategy,” Chief Executive Steven Gardner said.
The bank’s board is undecided about whether it should go after government money, he said.
“Personally, I’m against the bailout,” Gardner said. “I’m a capitalist. People need to take responsibility.”
Costa Mesa-based Pacific Mercantile, the largest local bank with more than $1 billion in assets, also is undecided on going after federal money.
“We’re looking at it very strongly,” Chief Executive Ray Dellerba said.
The bank has long been considered a take-over target because of its size. The billion-dollar asset mark tends to bring local banks to the attention of acquirers.
Japan’s Mitsubishi UFJ Financial Group Inc. said in September that it would buy out the remaining shares of San Francisco-based UnionBanCal Corp., the parent company of Union Bank of California NA, as part of a plan to acquire other banks.
American Security Bank in Newport Beach, the third largest here with more than $450 million in assets, also wants to buy.
The bank’s owner, B. John Barry, has re-sources for acquisitions, Chief Executive David Blankenhorn said.
Orange County remains a prized market for banks, as outsiders such as Long Beach-based Farmers & Merchants Bank expand here.
The bank’s president, Henry Walker, grandson of its founder, works from Newport Beach.
“Thank goodness we’re concentrated in Orange County,it’s a stronger market,” he said.
Farmers & Merchants Bank has $3.6 billion in assets and ranks No. 13 for deposits in the county with $1.1 billion.
