University Savings Bank Being Bought -- Purchase By First Interstate May Lead To Branch Closings

First Interstate Bancorp said today it will buy University Savings Bank's 25 branches for $190.4 million and merge them into First Interstate Bank of Washington by early next year.

University Savings, with $1.1 billion in assets, has been owned since 1989 by Glendale Federal Bank, which has been in financial difficulty since 1990 after suffering large losses on real estate loans in California and Florida.

Glendale recently sold a much larger branch network in Florida, and the sale of University Savings had been expected for some time.

"It has been a foregone conclusion for several years that University Fed would end up in somebody else's hands," said Jay Tejera, an analyst at Dain Bosworth in Seattle.

Both Glendale Federal and First Interstate Bancorp are headquartered in Los Angeles.

Although the change is expected to benefit University Savings customers by giving them access to more products and services, some University Savings branches probably will close and some jobs probably will be lost.

"The employees will take some of the brunt" of expected consolidations, Tejera said.

The deal is part of the effort by Stephen Trafton, Glendale Federal's chief executive, to bolster his ailing thrift by raising cash to meet federal capital requirements.

Although University Savings has been consistently profitable, "it is only a very tiny part of the company, somewhere between 5 and 10 percent," Tejera said. "Its market share in Washington is small, and Glenfed is not in a position to grow this operation here."

University Savings Chief Executive Brian Dempsey called the deal a "win situation for customers."

First Interstate has 124 branches in Washington and $4 billion in assets. But even adding University's assets will not move First Interstate past a distant fifth place in market share among large banking companies in this state.

Seafirst Bank holds the largest market share, about 25 percent, and Key Bank of Washington is second at about 17 percent. They are followed, in order, by Washington Mutual Savings Bank, U.S. Bank of Washington and First Interstate, Tejera said.

University Savings said its offices will be converted to First Interstate branches in the first quarter of 1995.

The acquisition, which is subject to approval by federal regulators, will boost First Interstate's residential-mortgage business.

"This agreement in Washington fits our strategic plan by increasing our presence in a key market," said James Curran, chairman and CEO of First Interstate's Northwest region.

Tejera said the acquisition will address a "steady erosion" of First Interstate's market share in Washington. "They have been very conspicuously absent from the interstate banking scene in the Northwest since 1987," Tejera said.

In the past decade, almost all of this state's large banking companies have changed hands, and once-familiar names such as Rainier Bank, Puget Sound Bank, Pacific First Federal Savings Bank and People's National Bank have disappeared.

The University Savings acquisition fits the current strategy of First Interstate, which has told analysts for the past six months that it intends to expand in Texas, California and Washington, Tejera said.

Two months ago, First Interstate acquired 15 branches of the failed Great American Savings Bank - 10 in the Seattle area and five in the Olympia area.