Regulators OK Great American 4-Year Capital Plan, Branch Sale

SAN DIEGO â€”  In an action that provides troubled Great American Bank with four years of grace from a federal takeover, the federal Office of Thrift Supervision Thursday approved Great American Bank’s capital plan, giving it until 1994 to raise its capital to minimum regulatory requirements.

An integral part of the capital plan approval was the OTS approval, also announced Thursday, of Wells Fargo’s purchase of Great American’s 130 California branches for $491 million. The OTS approval eliminates the final obstacle to the deal, which was first announced last July.

The first phase of the branch sale will be completed at the close of business today when Wells Fargo takes possession of 92 Great American branches and $4.5 billion in deposits. Included in the first phase are the S&L;’s 64 branches in San Diego County as well as all Orange and Riverside county locations. Wells Fargo will not put its signs on the branches until mid-January, however.

The second phase of the sale involving mainly Northern California locations will close in mid-1991.

“This is good news from a shareholder’s point of view because we didn’t get taken over,� Great American’s president, Robert Kemper, said in an interview Thursday. Had the OTS rejected Great American’s capital plan and the branch sale, a takeover probably would have followed, he said, wiping out the investments of Great American’s stockholders and bondholders.

Battered by two years of steep losses caused by loan problems in Arizona and California, the thrift is severely capital-deficient. As of Sept. 30, Great American had negative tangible capital, meaning it was insolvent according to federal regulators’ most stringent capital adequacy test.

Great American, once an industry powerhouse, agreed to sell its California branches to Wells Fargo as part of a last-ditch effort to save itself. When complete next year, the sale will leave Great American with 81 branches in Arizona, Colorado and Washington and less than $10 billion in assets, down from the current $15 billion.

By selling all 130 branches in California, Great American expects to book a $135-million gain, which is also the amount that it can add to its capital. Of that, $105 million will be booked today with the completion of the sale’s first phase. That $105 million will bring Great American back into positive tangible capital and “nearly� into compliance with the minimum requirement, Kemper said.

But Great American will not be in full compliance with all minimum capital requirements before 1994, Kemper said.

Wells Fargo reiterated Thursday that there will be no layoffs among the 1,900 employees it is absorbing as a result of the branch acquisitions, even though consolidation of its San Diego County operation will mean the closing of seven of 64 Great American branches as well as six of 26 Wells Fargo branches.

Kemper also said that Great American is in escrow to sell its Great American Development subsidiary by the end of 1990, a sale that the S&L; says will result in a loss of about $11.5 million. The thrift set aside a loss provision for that amount during its third quarter.

Observers said the OTS approval of the Great American plan demonstrates the high regard that regulators have for Kemper, a former vice chairman of Wells Fargo who became Great American’s chief executive in July.

Among the stipulations that OTS made in its approval of the Great American capital plan was that Kemper remain as chief executive and that the second phase of the branch sale to Wells Fargo be completed. If Great American runs afoul of those or other operating restrictions, the S&L; faces the threat of a takeover, the S&L; said in a Thursday statement.