First Nationwide Bank

135 Main Street
San Francisco, California 94105
U.S.A.
(415) 904-1100
Fax: (415) 904-1157

Wholly Owned Subsidiary of First Nationwide Holdings, Inc.
Incorporated: 1982 as First Nationwide Financial
Corporation
Employees: 3,500
Assets: $15 billion
SICs: 6035 Federal Savings Institutions; 6712 Bank Holding
Companies

With more than 150 branches in seven states and assets of about $15 billion, First Nationwide Bank was among the largest savings and loan institutions in the United States going into the mid-1990s. The bank provides a full range of consumer financial services, including banking, loan, and investment services. Beginning in the mid-1980s, First Nationwide expanded rapidly and then contracted just as quickly before it was sold by Ford Motor Co. in 1994.

First Nationwide Bank was incorporated as a publicly traded company in 1982 as First Nationwide Financial Corporation. However, the bank’s roots can be traced to January 14, 1885. On that day, Citizens Building & Loan Association opened for business in San Francisco with $50,000 in assets. Despite economic turbulence that marred the period, the burgeoning savings and loan survived and even managed to expand during the late 1800s and early 1900s. In 1906 the company’s facilities were ravaged by the infamous earthquake. Despite the giant setback, Citizens scrambled to resume business within three weeks—not a single depositor lost any funds as a result of the tragedy. By 1925 Citizens was boasting deposits of $1 million.

Citizens was slammed by the stock market crash of 1929 and the ensuing Great Depression. Unlike many of its peers, it managed to emerge intact, and then to benefit from federal legislation in succeeding years that was enacted to stabilize the historically volatile banking industry. Citizens was granted a federal charter in 1935, in fact, and changed its name to Citizens Federal Savings and Loan Association. Citizens distinguished itself in 1945 by making the first GI home loan in California to a returning World War II veteran, and again in 1953 when it became the first association to convert from a federal mutual charter to a state stock charter. In 1955, moreover, Citizens opened its first branch office. That branch, opened in a nearby San Francisco neighborhood, signaled the start of a long period of growth during the 1960s and 1970s.

Indeed, Citizens became involved in a series of mergers and acquisitions during the 1960s and 1970s that completely changed the face of the tiny building and loan association. Importantly, in 1962 Citizens merged with First Federal of San Jose, resulting in an organization with a whopping $200 million in assets. Similarly, Citizens was absorbed in 1973 by United Savings and Loan. The combined institution was incorporated as a holding company named United Financial Corporation of California. By the end of the 1970s, United Financial was controlling nearly $3 billion in assets. In 1980, though, that holding company was acquired by National Steel Corporation as part of that company’s effort to diversify out of the steel industry.

After being integrated into United Financial and then National Steel Corporation for nearly a decade, Citizens was restored as a separate entity in 1981. Citizens was converted back to a federal charter and renamed First Nationwide Savings. It became the first U.S. savings and loan institution to cross state lines when, with federal assistance, it acquired failed savings and loans in Florida and New York. Those acquisitions boosted First Nationwide’s asset base to a big $6.9 billion going into 1982. During that year, National Steel reduced its ownership share to 82 percent and effectively spun off the unit as First Nationwide Financial Corporation, a publicly traded financial institution with $7.2 billion in assets and 140 branches in three states. Thus, in just two years Citizens had been completely transformed from a regional savings and loan into a multi-state, multi-billion-dollar entity with offices on both coasts.

The evolution of the giant First Nationwide during the early 1980s reflected a trend of consolidation in the financial services industry that gained momentum in the early and mid-1980s. The emerging paradigm at the time was that financial “supermarkets” would eventually dominate the financial services and banking landscape; many people believed that giant, diversified, national financial networks, which would benefit from economies of scale made possible by new information technology, would take the place of local and regional financial institutions. Because it was the first savings and loan to expand nationally, First Nationwide was considered on the cutting edge of the financial supermarket trend. For that reason the company caught the eye of automobile giant Ford Motor Company.

Ford purchased First Nationwide Financial Corporation, along with some bank branches in Hawaii, in 1985 for $493 million. By that time, the savings and loan was sporting 177 branches in four states and a portfolio with about $11.6 billion in assets. Ford management viewed the buyout as a diversification with vast potential. Ford would buy up troubled savings and loans across the nation and then assemble them into a cohesive, efficient financial supermarket—the first truly nationwide thrift in the United States. In 1986 Ford changed the name of First Nationwide Savings (the chief subsidiary of First Nationwide Financial Corporation) to First Nationwide Bank, a federal savings bank. Ford also acquired new branches from a troubled thrift in Ohio.

Ford’s foray into the booming financial services industry initially appeared to be a savvy move. First Nationwide posted a healthy $102 million profit in 1986 and was successfully building its network. In 1987, in fact, First Nationwide Bank opened new branches in Michigan, before expanding aggressively into Illinois, New Jersey, and Denver in 1988. During 1988 First Nationwide doubled its assets to an impressive $29 billion, making it a leader in the national thrift industry. While it was buying up savings and loans, Ford was also expanding its banking operations into retail stores. Ford partnered with K-Mart discount stores to eventually open about 200 First Nationwide offices in 13 states across the nation.

Unfortunately, First Nationwide’s financial performance failed to keep pace with its growth. After peaking in 1986, the thrift’s profits stalled. Company executives explained that the profit plunge was temporary and expected, given the poor financial condition of the savings and loans that it had purchased. However, the problems actually ran much deeper. In fact, by 1988 First Nationwide had ballooned into an unwieldy, loosely connected amalgamation of troubled financial institutions. As a result, First Nationwide’s profits began to plummet. At the same time, the savings and loan industry itself was beginning to totter from deep-rooted structural problems that would eventually result in the infamous and costly U.S. savings and loan debacle of the late 1980s.

By late 1988, Ford management realized that First Nationwide was in trouble. In an effort to turn the operation around, Ford brought in a new chief executive, John Devine, to replace Anthony Frank. Devine had joined Ford straight out of business school in 1967 and worked as a financial executive on the automotive side of the business. Devine took the helm in September of 1988. He immediately began paring the thrift’s assets and working to restructure the unruly operation. Importantly, Devine junked the lagging K-Mart outlets. Although the number of First Nationwide K-mart branches had swelled to about 200, they were only serving about 8,500 households and had generated a pitiful $200 million in combined deposits—less than the total deposits of just one of the company’s larger non-retail branches.

After lopping off the retail outlets and eliminating some of the network’s less successful branch operations, First Nationwide was left with about 250 full-service branches in 15 states and an ATM network of 25,000 automated teller machines sprinkled across the country. Total assets dropped to about $26 billion; the bank’s parent, First Nationwide Financial Corporation, had a total of $34 billion in assets, $8 billion of which were attributable to smaller savings and loan subsidiaries. Still, Devine’s efforts were insufficient to turn the ailing thrift around. As a real estate depression intensified and federal regulations affecting the thrift industry proliferated, First Nationwide’s profits deteriorated. Devine responded by cost-cutting, laying off employees, and selling more assets. Nevertheless, the company began losing money in 1991.

During 1992 and 1993 Devine continued to sell off chunks of First Nationwide, while expanding very cautiously into more profitable regions of the United States. By early 1993 the number of states in which the bank was operating had been decreased from fourteen to ten, and the total number of branches had fallen to 225. Before the end of the year, the bank’s assets had declined to a total of $ 17 billion and its network was serving only eight states. Although management vowed that it had not thrown in the towel, it appeared that Ford’s dream of building the first nationwide financial supermarket had become a nightmare.

Even by the early 1990s, Ford might have completely jettisoned First Nationwide Financial Corp. and all of its subsidiaries had it been able to elicit an amount even close to what it had invested in the project. Instead, it continued to invest more money, hoping that the operation would recover. It didn’t. By the end of 1993, First Nationwide was still the country’s fourth largest savings and loan institution, but it held that status in a floundering industry. Frustrated with ongoing problems, Ford management decided to sell First Nationwide.

Ford found a buyer for First Nationwide Bank early in 1994. The company was purchased by Dallas-based First Madison Bank for a total of $1.1 billion—Ford took a $440 million write-off and retained $1.2 billion of the thrift’s bad loans. It was the largest transaction in the history of the savings and loan industry. First Madison was a thrift founded in 1993 by financier Ronald O. Perelman. Perelman created the thrift with assets left over from the sale of First Gibraltar, his troubled thrift that he sold to BankAmerica Corp. in 1993. Perelman was attracted to the deal by First Nationwide’s giant $6 billion portfolio of single-family-home loans, but also by its operations in California and Florida. Perelman appointed Gerald J. Ford, former head of First Gibraltar, as chief executive at First Nationwide. He also dropped the First Madison name in favor of First Nationwide.

When Perelman bought First Nationwide, the thrift had 180 branches in eight states and $15.5 billion in assets. Going into 1995, the thrift had 156 branches in seven states: California, Florida, Michigan, New Jersey, New York, Ohio, and Texas. It also had 22 residential lending offices and five satellite offices in six states, and was originating residential loans in a total of 35 states through its wholesale lending operations. With a work force of 3,500, First Nationwide Bank was the seventh largest savings and loan institution in the nation. It provided a full range of consumer banking services, including consumer loans, investments, savings and checking accounts, and, through its First Nationwide Mortgage Corporation subsidiary, mortgage loans. A healthier loan portfolio and increasing efficiency suggested improved performance for the thrift in the future.