As Washington Mutual Inc. prepares to expand its presence on the Los Angeles banking scene through its acquisition of Chatsworth-based Great Western Financial Corp., several other out-of-state institutions are gaining footholds in Southern California.

Pittsburgh's Mellon Bank recently consolidated its marketing and management operations for 13 Western states into one location in downtown Los Angeles. Mellon also announced its intent to purchase downtown L.A.'s 1st Business Bank in April as part of its drive to bolster its local-business operations in Southern California.

Likewise, Bancorp Hawaii Inc. announced its entry into the California market this spring through the intended purchase of CU Bancorp of Encino. As part of the deal, CU Bancorp will remain intact as a separate corporate entity, effectively establishing the franchise as Bancorp Hawaii's California operations center.

The influx of out-of-state institutions into L.A. is largely being fueled by a new federal interstate branching law. The law, which took effect June 1, allows banks to open branches across state lines.

Other factors fueling the influx are the disappearance of major banking headquarters from L.A. and the lucrative banking market in Southern California.

"There might be a vacuum down there (in L.A.), so we could see some very large institutions coming in," said Conrad Hewitt, superintendent of banks for the State of California.

Mellon now employs about 100 people in its downtown L.A. headquarters, and that number will increase as the bank grows its business here, said Keith Russell, chairman of Mellon Financial Group West Coast.

Mellon's decision to base its West Coast operations in L.A. was determined by several factors, including the lack of competition.

"The fact that there wasn't a large bank headquartered here was definitely a factor in our thinking," Russell said.

Washington Mutual already employs nearly 400 people at its California headquarters in Irvine, following its acquisition of American Savings Bank last year.

That number is expected to grow significantly with the pending addition of Great Western, though Washington Mutual has yet to be decide if its regional headquarters will remain in Irvine, moved to Great Western's headquarters in Chatsworth, or be split between the two, said Washington Mutual spokeswoman Libby Hutchinson.

"Our California operations will be the dominant geographic area for us (even more so than Washington state), so it's going to be important to have a presence there," she said.

Under previous banking laws, out-of-state banks could only enter California by establishing or purchasing independent subsidiaries. Those subsidiaries were required by law to have separate operating systems and independent boards of directors.

Under the new law, banks no longer need to operate their interstate branches with separate systems and boards of directors a move that should help major out-of-state banks reduce their cost of operating in California.

The prospect of national banks further expanding in California could heat up competition in the market, but the effect on local players should be minor at the outset, said David Burgess, vice president of policy analysis at the California Bankers Association.

"Everybody wants to be in California, but it's already a very competitive market. I'm sure some big banks are looking at California, but how to enter the state will present some difficulty for them," Burgess said.

Local banker Craig Collette agreed that strong competition in the L.A. market will probably keep many out-of-state banks at bay for the next few years.

"California is still a very attractive market, and banks that want to be national players will want to come here," said Collette, president and CEO of Marathon National Bank in West L.A . "But it won't be a rush. It'll be gradual."

Indeed, Chase Manhattan Bank the nation's largest bank has no plans to beef up its L.A. presence in the immediate future, said spokesman Ken Herz. Chase already has private banking, mortgage and entertainment lending operations in L.A., but it does not intend to enter the local consumer or small-business banking market any time soon, Herz said.

"(The deregulation) doesn't portend any strategic refocusing for us. We're not interested in having retail branches in 50 states of the union. We're not interested in a bricks-and-mortar presence in every town in America," he said.

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