1st Interstate to Split Up Bank in State : Major Restructuring Also Includes Several Executive Changes

In an effort to boost the disappointing profitability of its California bank subsidiary, Los Angeles-based First Interstate Bancorp announced Tuesday a major reorganization that will result in the California bank splitting off its large corporate and foreign lending activities into a separate firm.

The parent firm also tapped the chief of its highly profitable Nevada bank unit to run the California bank, which is also based in Los Angeles, while naming the chief of its highly profitable Arizona bank unit as new president of the parent company.

Under the changes, which went into effect immediately, First Interstate Bank of California, the parent firm’s largest subsidiary and the state’s fifth-largest bank, will be split into two firms. The unit will retain retail banking activities, such as consumer-branch banking and lending to small- and medium-size companies.

Lend to Large Companies

A newly created firm, to be called First Interstate Bank Ltd., will handle wholesale banking activities, including lending to large corporations, foreign loans, merchant banking and financial advisory services. It will be based in Los Angeles and employ about 900 workers worldwide, company officials ssaid.

Norman Barker Jr., 63, who as chief executive and chairman of the California bank had been under pressure to boost the unit’s sluggish performance in recent years, will become chairman of the new wholesale-banking firm.

However, he will retire at the end of this year, a year earlier than required under the firm’s mandatory retirement age of 65.

Named to replace Barker as chief executive and president of the California unit was William E. B. Siart, 38, chairman and chief executive of First Interstate Bank of Nevada, one of the most profitable of the 21 banks in First Interstate Bancorp’s 11-state banking network. John F. King, 51, currently president of the California unit, will become chairman.

Edward M. Carson, 54, who has been chairman and chief executive of First Interstate Bank of Arizona, another highly profitable unit, was named president of the parent company. He will replace George R. Rothell, 54, who was named vice chairman of the parent with responsibility for subsidiary banks in the Rocky Mountain states.

News of the restructuring, which was generally praised by Wall Street banking analysts, comes less than two weeks after the California bank disclosed that it would reduce its work force by as much as 7%, or 875 jobs, in a cost-cutting move.

The reorganization is the latest in a series of steps by First Interstate Bancorp to exploit its vast interstate retail branch network, which it has been allowed to keep because it developed it before interstate banking was outlawed in 1956.

Previous moves in the last five years to exploit that territorial advantage include changing the name of the firm from Western Bancorporation, having other banks adopt the First Interstate name under a franchising program and developing technology to integrate automatic tellers and other systems.

But by focusing on those efforts, “we may not have been as attentive to maximizing profitability as we should have,” Joseph J. Pinola, chairman and chief executive of the parent firm, said Tuesday in an interview.

The wholesale-banking activities of the California bank have generally tended to drag down the profitability of the unit as a whole, so segregating it will allow the retail bank to concentrate on that activity while having the new wholesale bank report directly to the parent firm, company officials said.

“First Interstate has been a strong retail bank but (has) not been a strong wholesale bank,” said Donald K. Crowley, senior vice president for Keefe, Bruyette & Woods Inc., a New York-based firm specializing in bank stocks. “This is a way of letting the California bank be a retail bank and segregating out the wholesale.”

The new wholesale bank will either become more profitable or will shrink, Crowley predicted.

Pinola, 59, acknowledged that the parent firm has been disappointed in the profitability of the California bank, which has been hurt by loans in real estate and construction that grew sour during the recession.

First Interstate Bank of California’s return on equity--profit as a percentage of net worth--was about 12% in 1984, compared to 13.4% for First Interstate Bancorp as a whole, 15.6% for Los Angeles-based Security Pacific Corp. and 12.7% for San Francisco-based Wells Fargo & Co., according to estimates by analyst Crowley and actual results.

The California bank’s profitability also has trailed many of its sister banks in other states, including those in Washington, Oregon, Arizona and Nevada.

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

Both firms are expected to announce fourth-quarter and full-year results soon.

By allowing for opportunities to consolidate jobs, the restructuring move will also complement the planned work-force reduction at the California bank, Pinola said. However, Pinola said, the actual reductions will probably be closer to 5% of the bank’s 12,500-member work force, or about 625 employees.

Barker, the outgoing chief of the California bank, acknowledged that it did not perform as well as hoped. But in an interview, he denied rumors that he was forced out.

He said his decision to take an earlier retirement resulted from “mutual agreement” between himself and management, and will allow him to devote more time to his extensive civic activities, which include trusteeships for Occidental College and the Los Angeles County Museum of Art.

In other management changes, Bruce G. Willison, 36, previously executive vice president of the California bank’s wholesale-banking activities, was named president and chief executive of the new First Interstate Bank Ltd. unit.

Gary W. Fiedler, 40, previously executive vice president in charge of the California bank’s branch system, will succeed Siart as president and chief executive of First Interstate Bank of Nevada.

Robert H. Duckworth, 52, will be promoted from executive vice president to chairman and chief executive of First Interstate Bank of Arizona, replacing Carson.