Low-key Downey businessman Alex Meruelo’s investments include a pizza chain; a Reno, Nev., casino; and a major producer of prepackaged sushi – and now he’s adding a struggling Brentwood bank to his portfolio.
NCAL Bancorp, parent of lender National Bank of California, announced last week that Meruelo will buy a controlling stake in the company for $13 million, ending more than a year of limbo for the institution. NCAL has been the subject of lawsuits and a federal probe since the middle of last year, all related to its outsized role in processing transactions for high-interest online payday lenders.
The bank in September of last year announced that an unnamed California investor had agreed to buy and recapitalize the bank in a $25 million deal, but the transaction was contingent on NCAL resolving at least the federal probe. At the time, executives said they expected the deal to close by March of this year.
Now, it appears the deal has finally gone through. While neither NCAL nor Meruelo would comment beyond NCAL’s announcement, the terms of last week’s deal closely match those of the agreement announced 15 months ago.
NCAL will issue nearly 20 million new shares, which Meruelo will buy for about 55 cents each – the same price announced in September 2013. He’ll also buy out $2.1 million of the $3.9 million in Troubled Asset Relief Program shares owned by the U.S. Treasury Department, with existing bank shareholders buying the rest.
In the end, Meruelo will end up with an 80 percent stake in NCAL, with the option to buy an additional $10.2 million worth of shares at the same 55 cent price over the next year. If he buys all those shares, his total investment would add up to $23.2 million.
NCAL’s shares trade thinly on the over-the-counter market. The bank’s stock fell to as low as 25 cents before the Meruelo deal was announced Dec. 10. The news pushed the stock up 60 percent – to all of 40 cents a share – the following day.
While a relatively small deal – involving a relatively small bank – it’s noteworthy both because of NCAL’s troubles over the past few years and because of Meruelo’s interest in the bank.
Payday
Less well known than his brothers – Richard, who co-founded defunct downtown landlord Meruelo Maddux Properties Inc., and Homero, a Miami developer – Alex Meruelo has a vast and diverse portfolio of investments through his Downey firm Meruelo Group.
The company owns Latino-focused pizza chain La Pizza Loca, Santa Fe Springs sushi maker Fuji Food Products Inc. and Hancock Park old-school hip-hop radio station KDAY-FM (93.5). The company also has commercial real estate holdings throughout Southern California.
Meruelo briefly stepped into the spotlight in 2011, when he nearly purchased the National Basketball Association’s Atlanta Hawks for $300 million. The deal later fell through.
This wouldn’t be his first bank investment. Meruelo is a director and co-founder of Irvine lender Commercial Bank of California. It’s not clear if he intends to combine the two institutions. Both are relatively small.
Commercial Bank has just two branches and assets of $268 million. NCAL has assets of $340 million and four branches.
The most notable thing about NCAL is that it’s an outsized player in the world of automated clearinghouse, or ACH, payment processing.
ACH transactions are commonly used to automatically deposit paychecks, but they’re also used by payday lenders to pull money out of borrowers’ accounts. Despite its small size, NCAL has for years ranked among the nation’s largest processors of ACH payments and works with some online payday lenders.
Those lenders have been the subject of scrutiny by federal regulators and agencies in several states because they often charge interest rates far beyond those allowed by various state lending laws. The bank last year was named as a defendant in two lawsuits that alleged it and other banks were helping lenders collect on illegal debt.
One case has since been dismissed and the other has moved into court-ordered arbitration.
Meanwhile, NCAL has struggled in other ways. It hasn’t been profitable since 2008 and is on track for another unprofitable turn this year. Over the past few years, the bank has been downsizing, selling branches in Westlake Village and Glendale, and a 2012 deal to sell the bank to downtown L.A.’s Grandpoint Capital Inc. fell through.
