L.A. Bank to Cut Payroll by 875 Jobs : First Interstate Says 7% Reduction May Come by March 31

In an effort to pare costs and streamline operations, Los Angeles-based First Interstate Bank of California plans to cut up to 875 jobs, or about 7% of its work force, possibly by the end of March, bank officials said Thursday.

The bank, the largest subsidiary of Los Angeles-based First Interstate Bancorp, plans a combination of layoffs, attrition, job consolidations, reductions in hours and reductions of part-time and temporary employees, spokesman Paul Minch said. Additional branch closings are not planned, however.

The move reflects the parent firm’s concern about the California bank’s growing labor costs and other expenses in this state’s highly competitive market, industry sources said.

Other California banks, particularly San Francisco-based Wells Fargo Bank, have been very aggressive in trimming branches and staff rosters, which grew fat in the years before deregulation, when banks did not have to pay high interest rates for deposits.

Problem Loans

“When you have a system as big as ours, it’s easy for employment to grow faster than profits warrant,” First Interstate’s Minch said, adding that expenses at the California unit have been growing about twice as fast as its assets.

The move also reflects the parent company’s concern about the relatively sluggish profitability of the California unit compared to its other units, industry sources said.

The California bank, hurt by a high number of problem loans to construction and energy borrowers, has a return on assets of only about half that of First Interstate Bancorp’s banks in Arizona and Nevada, and significantly below that of its banks in Washington and Oregon.

Accordingly, the work force reductions will only affect the California unit and not the 20 other banks in First Interstate Bancorp’s 11-state system, which it acquired before interstate-bank acquisitions were outlawed by Congress in 1956.

The California unit, the fifth-largest bank in the state and the 14th-largest in the nation, accounts for about 37% of the parent firm’s employment and about 40% of its profits.

Industry sources also noted that the staff reductions are related to the parent company’s continuing management-reorganization and acquisition strategy, designed to sharpen its focus on its consumer and medium-sized business customers and to pare unprofitable or non-essential businesses. As part of this effort, the parent firm recently acquired the Chicago-based mortgage banking and the London-based merchant banking operations of Continental Illinois Corp. The parent firm also has been pursuing a franchising plan under which banks in other states have adopted the First Interstate name.

However, spokesman Minch noted that the planned staff cuts are not due to any dramatic problems similar to those besetting San Francisco-based Crocker National Corp., which said Wednesday that it will report a record loss of $215 million in the fourth quarter due to problem loans.

While its California operations have had profitability problems, First Interstate Bancorp as a whole is generally well regarded in the industry for its vast branch network, technological innovation and low exposure to Third World loans.

First Interstate Bancorp earned $201.6 million in the first nine months of 1984, up 11.4% from the year-ago period. The California bank earned $84.4 million in the same period, 13.8% above a year ago.

“There are no write-offs contemplated, no negative news to report,” Minch said in denying that the staff reductions were triggered by any major problems.

The reductions will mostly take place in Southern California, where most of the bank’s 12,500 employees work, but exact numbers have not been determined, he said.

The brunt of the reductions will fall on management and clerical personnel and less on tellers and other branch-service personnel with direct contact with consumers, he said. “Most vulnerable are those employees with relatively low perrformance scores and ratings,” Minch said. He added that evaluaations of employees have already begun and that most or all of the cutbacks “probably” will be commpleted by the end of March and certainly within the next several months. Employees already have been informed of the bank’s general plan to cut costs but not the details, he said.

Branch closings will continue to be relatively small in number, Minch said. The California bank had said earlier that it plans to trim its total branches statewide by the end of March to 323 from 335, but its long-term plan is to increase branches, he said.