Citigroup Takes In Golden State Bancorp

In an effort to increase its retail distribution network, Citigroup Inc. bought Golden State Bancorp Inc. in May for about $5.8 billion. Golden State is the nation’s second-largest savings bank. It also owns First Nationwide Mortgage Corp., the eighth-largest mortgage servicing company, as well as Auto One, which writes prime and sub-prime auto loans. Golden State is a roll-up that was built by the acquisitions of such West Coast thrifts as First Nationwide Bank, Cal Fed Bancorp Inc., and Glendale Savings & Loan. Golden State’s main competitors are Wells Fargo & Co., Bank of America Corp., Union Bank of California, and Washington Mutual Inc. The company is controlled by New York financier Ronald Perelman, who holds a 32% interest, and Golden State CEO Gerald J. Ford, who owns 20%. These executives have had Golden State on the market for some time. They took over its original building block, First Nationwide, in 1993. “I think Perelman and Ford were in Golden State longer than they wanted to be, but they had to be patient because bank stocks have been down for the last two years,” says Paul Miller, a banking analyst at the Arlington, Va.-based brokerage of Friedman, Billings & Ramsey. For its part, Citigroup becomes owner of the fourth-largest branch network in California with 352 outlets. “The acquisition of Golden State marks an important step in our effort to increase Citigroup’s retail distribution franchise in the U.S. and, in particular, significantly expand the scope and breadth of our services in California and Nevada,” said Citigroup chairman and CEO Sanford I. Weill in a statement. But the Golden State acquisition may be only the beginning for Citigroup. “I don’t think they will be content to be the fourth-largest player in terms of branches in the state,” Miller says. He points to Union Bank of California as a potential target for Citicorp. “I would expect Weill to put on a full court press to continue growing in California, and Union Bank is a likely target.” However, Union Bank is majority owned by Mitsubishi Tokyo Financial Group, and Miller is unsure about whether its owners would put it on the sale block at a time when the parent is strapped for cash. Also affected by the acquisition of San-Francisco-based Golden State will be the state’s second-largest bank, Wells Fargo, which, according to Mark Agah of RBC Capital Markets, will feel pressured to bulk up. Beyond a reach for size, Agah says that the deal represents a recommitment by Citigroup to retail customers. He notes that it is part of a “back to the basics” movement among banks to give them a safer, if less exciting, mix of operations. This theory holds that retail banking can be used to offset other lines of business, like syndicated loans and m&a, where earnings are off. Along these lines, Miller states that Fleet Bank has just closed down some of its investment banking operations in order to concentrate on retail banking. “If Citigroup could find a national retail branch system, they’d buy it. An acquisition like Golden State, with its minimal integration risk, is the next best thing,” he says.