Sale of BSD Bancorp Subsidiary Called Off

In a setback for BSD Bancorp’s effort to bolster its capital base, the proposed sale of BSD’s Bank of La Costa subsidiary to a group of investors led by the bank’s chairman has been called off.

The investor group, Financial Consortium of America, blamed additional financial requirements and restrictions by regulators for the sale’s demise.

Financial Consortium--led by Lowell Hallock, Bank of La Costa chairman and the former president of Bank of San Diego, BSD’s largest subsidiary--was supposed to buy both BSD’s 51% stake in the bank and the outstanding 49% in publicly held stock for $10.50 per share.

The company, with nearly 248,000 shares outstanding, would then have become completely private, and BSD would have increased its capital base by $1.3 million.

The deal soured when regulators tried to restrict the amount of debt that Financial Consortium could incur without prior regulator approval, according to Bruce Spear, the consortium’s attorney.

The initial debt levels approved by regulators changed from the time the sale was first announced in March, Spear said. He declined to disclose both the initial debt figures and the levels regulators called for later.

Some of the consortium’s participants “felt that the requests were unreasonable and the the (consortium’s) ability to operate would be adversely affected,” Spear said.

Partners in Financial Consortium, which was organized specifically to acquire control of Bank of La Costa, include Hallock and North County businessmen Salvatore P. Osio and Robert Kleffel, as well as a dozen other North County business people.

It was Osio who most strongly opposed the new requirements, according to a source familiar with the deal.

BSD will “continue to look for a qualified buyer” for Bank of La Costa, according to James S. Brown, BSD chairman. In addition, the consortium reportedly will continue to search for additional investors to buy the bank, which had $16.2 million in assets as of Dec. 31.

Hallock was president of Bank of San Diego until November, 1984, when he resigned after the bank’s disclosure that it had about $4 million in problem loans and its first-ever quarterly loss, of $1.9 million, in the third quarter ended Sept. 30, 1984.

BSD, with total assets of $324.1 million as of June 30, reported earnings for the six months of $485,000. Its primary capital ratio as of June 30 was 7.1%, an increase from 6.7% at year end. Third-quarter results are expected to be announced this week.

BSD is in the midst of a rights offering that officials hope will raise $3 million. Shareholders can purchase an additional share of stock for $3 per share for every three they own. The offering expires Dec. 15.