1st Interstate Will Pursue Its Bid to Buy BankAmerica

First Interstate Bancorp on Monday said it would press its $3.4-billion bid to acquire BankAmerica despite BankAmerica’s request that it withdraw the unwelcome offer.

First Interstate’s board of directors, in a statement, said the Los Angeles banking company intends to “pursue every prudent measure to bring about such a merger.” But First Interstate stopped short of announcing a hostile takeover attempt and set no deadline for BankAmerica to respond to its merger proposal.

First Interstate appeared to be caught between its unwillingness to mount a hostile deal and BankAmerica’s refusal to negotiate a friendly transaction. BankAmerica said earlier this month that it saw no reason to merge with First Interstate “at this time.”

$1 Billion in Losses

BankAmerica said Monday that it had no response to First Interstate’s latest comments beyond what it said Nov. 3 in reply to First Interstate’s formal merger offer. BankAmerica has since announced a restructuring program whose aim is to sell assets to stem losses, raise capital and remain independent.

BankAmerica, parent of San Francisco’s Bank of America, has suffered nearly $1 billion in losses over the past 18 months, leaving it vulnerable to unwelcome takeover bids. Several other firms and individuals are trying to acquire all or part of the troubled banking firm, although First Interstate’s bid is the only formal offer to buy the whole company.

First Interstate gave no hint Monday what its next move might be. It said the board and management, acting unanimously, had decided not to withdraw the merger proposal “because we feel that it is in the best interests of the shareholders of both companies for that proposal to receive a proper evaluation and be acted upon.”

Several First Interstate directors have said they do not want to see First Interstate Chairman Joseph J. Pinola risk the company’s health and the disapproval of federal banking regulators by pushing a hostile tender offer or a proxy fight for BankAmerica. An unfriendly takeover is particularly risky because First Interstate would be buying BankAmerica without prior access to vital information about BankAmerica’s $5 billion in bad loans and foreclosed real estate and other potential internal troubles.

“Pinola basically is stymied, and he’s starting to look like an amateur,” said banking industry analyst Stephen Berman of Nomura Securities International in New York.

Berman, who said he believes the First Interstate-BankAmerica merger is “not doable,” said First Interstate is pursuing the deal because of its weak market position in California. He said that without the dramatic growth the BankAmerica acquisition would bring, First Interstate will not be able to compete effectively in California against such rivals as Security Pacific and Wells Fargo & Co.

Donald K. Crowley, analyst at the San Francisco office of Keefe, Bruyette & Woods, said First Interstate’s statement Monday appears to signal the bank’s desire to open a dialogue with BankAmerica. To date, the two banks have not discussed a deal formally or informally, sources have said.

“They (First Interstate’s directors) reached middle ground,” Crowley said. “They left the offer on the table, seeking some constructive response without going into the hostile mode. The ball is now in B of A’s court.”

He said First Interstate’s statement “leaves open the possibility of more aggressive action after the first of the year,” particularly if BankAmerica continues to resist merger talks and its financial situation does not improve.

“We’ll just have to put up with the continuing anxiety,” Crowley said. “They’re still sparring.”