Suitor to Press On : Fed Delays Look at First Interstate Proposal for BofA

In what could prove to be a setback to First Interstate’s effort to acquire BankAmerica, the Federal Reserve Board said Thursday that it would not consider First Interstate’s merger application until February.

Analysts said the action could force First Interstate to modify its strategy of keeping BankAmerica off balance and under pressure to respond quickly to the $3.23-billion buyout offer. However, a First Interstate official said the Fed action was routine and would not affect its pursuit of BankAmerica.

First Interstate this week registered the securities it plans to use in its takeover bid with the Securities and Exchange Commission and said it intended to launch an exchange offer “as promptly as practicable.” First Interstate cannot accept shares for exchange, however, until the Fed approves its merger application.

Some Benefit for B of A

Analysts noted that the delay benefits BankAmerica because the loss-plagued San Francisco bank can use the extra time to show progress toward a turnaround and to put in place a strong “poison pill” or other takeover defense.

BankAmerica lawyers are thought to be preparing such anti-takeover steps for presentation to the board of directors early next year.

The Fed’s San Francisco office said it would not review the First Interstate application and was returning the four-inch-thick document to First Interstate because the merger could not legally be completed before July 1, when Washington state law allows cross-border bank acquisitions.

The Washington law affects the deal because First Interstate would be acquiring Seafirst, a Seattle-based subsidiary of BankAmerica.

A Fed official said the move did not signify Fed coolness to the proposal but was merely a technical objection to the timing of First Interstate’s application.

BankAmerica, obviously pleased with the Fed decision, issued a press release late Thursday announcing it.

A First Interstate official, however, said the Fed action “is not a major obstacle. We will proceed.”

He noted that First Interstate was aware of the Washington law and did not intend to make the deal final before July 1 anyway.

In its application to the Fed, First Interstate said it plans to sell off Seafirst to satisfy antitrust considerations. It already owns a major bank in Washington.

The Fed said in letters sent Thursday to BankAmerica and First Interstate that it is the agency’s policy not to approve a bank merger more than 90 days before it could legally be completed--April 2 in this case. It acts on applications in a 60-day period, so it told the banks it would not accept First Interstate’s application before Feb. 2.

Banking analyst Werner Keller of the Los Angeles brokerage house of Bateman Eichler, Hill Richards said the Fed was happy to find a reason to delay action on the First Interstate proposal.

“It slows the momentum,” Keller said. “It’s an unprecedented deal for the Fed and they’ve found a reason to think about it some more. But I don’t think there’s anything more than that to read into it either way.”

Keller suggested that the delay gives the banks and regulators a chance to review year-end audits of both banks, to see if there are any new reasons to either approve or reject the merger.

“It’s probably to First Interstate’s advantage to have that water under the bridge without having to commit themselves. First Interstate can withdraw its bid if it doesn’t like what it sees (in the year-end audit). It’s a no-lose situation for FI,” Keller said.