BENJAMIN MARK COLE
With virtually every bank and thrift stock in California's improving economy considered in play, or at least playable, investors might want to seriously consider adding financial stocks to their portfolios, say experts.
"Back up the truck, and load it up to the top with California financials," said Charlotte Chamberlain, bank and thrift analyst with brokerage Jefferies & Co. in West Los Angeles. "The economy here is improving, and the consolidation wave that has already visited the rest of the country is coming here."
Nor should investors be daunted that they have missed the boat. Although values of local banks and thrifts have had an enormous run-up in values in the past two years even eclipsing a stupendous rise of the general stock market it is not too late to hop aboard, said some analysts.
"Well, of course, it would have been nice to buy some of these stocks two years ago, when they were trading at 30 percent of where they are now, but then hindsight is always 20/20," said Campbell Chaney, analyst with Sandler O'Neill in Walnut Creek. "But there is still going to be a lot of M & A; action."
Recent bank and thrift buyouts include Wells Fargo Bank's acquisition of First Interstate Bancorp, Bank of America's takeover of Security Pacific, Bancorp Hawaii's buyout of Encino-based CU Bancorp, and Tampa-based IMC Mortgage Co.'s buyout of Los Angeles-based CoreWest Banc, among many other transactions.
The whole environment for bank and thrift stocks has changed in the last 10 years, due to the ascendance of institutional shareholders.
Take the case of local thrifts H.F. Ahmanson & Co. and Great Western Financial Corp. As the two rivals circle each other in a takeover struggle, it is institutional shareholders that own more than 80 percent of each thrift. The same five large institutions are the largest shareholders in each company.
In such a scenario, shareholder loyalty is almost always to the most lucrative deal.
The days in which shareholders' meetings were dominated by longtime loyal shareholders, who seem to know management on a first-name basis, are essentially over.
The modern investor only cares about getting a return on his or her investment making banks and thrifts extremely vulnerable to buyout offers.
According to an analysis by Mergerstat, an arm of Century City-based specialty investment bank Houlihan Lokey Howard & Zukin, the typical "premium" over existing market price paid to acquire a bank is 33 percent.
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