2 Banks Are Expected to Follow Different Paths : Banking: A change in leadership is about the only thing Security Pacific and First Interstate share. Analysts say one will grow and one will shrink.

One day after Security Pacific said its top officers would pass the helm on to their heirs apparent, First Interstate announced its chief executive--Joseph J. Pinola--is planning to retire in June and leave the leadership of Los Angeles’ second-largest banking company to Edward M. Carson, First Interstate’s president.

But the coincidental timing of the top management changes at the city’s two largest banks is where the similarities end.

The two banks, which have taken on widely disparate roles over the past several years, are likely to become even more diverse in the future because of the legacies left by former managers, analysts said. Ultimately, their different paths will determine whether these banks will emerge as survivors of a predicted banking industry shakeout.

While Security is likely to grow, First Interstate is likely to shrink. Security is likely to be buying more banks, launching new products and opening diverse operations over the years to maintain its leadership position in merchant and international banking. But First Interstate may be trying to sell units and cut back on products and services in an effort to stem losses.

First Interstate is also widely considered a prime takeover target. Security’s Smith said Tuesday that he’d be willing to talk about buying the company if First Interstate was amenable.

“First Interstate has to go back to basics, like tackling expense reduction. And ultimately, they will probably have to consolidate the banks,” said Carole Berger, banking analyst with C. J. Lawrence, Morgan Grenfell in New York. The bank must also develop a long-term strategic plan, which has been lacking in the past, she said. “First Interstate has been drifting.”

Security Pacific, on the other hand, just needs to follow through with plans started by previous managers, analysts said.

“The two banks are completely different because of the strategies taken before today. That will have a big impact on where they go in the future,” Berger added.

The banks have been going in somewhat opposite directions nearly from the day they were started. First Interstate opened its doors as a multistate banking company, formed by the spinoff of Transamerica Corp.’s banking operations in 1958. Security started out as a simple California-based bank. It expanded by buying dozens of smaller community banks, but didn’t set foot outside of California until a few years ago.

While First Interstate stretched its increasingly far-flung empire with a franchise program allowing banks in other states to use its name and some of its operations for a fee, Security began to diversify in other ways.

By the mid-1980s, Security had launched an aggressive program that took it into merchant banking and discount brokerage overseas, and it was constantly testing bank regulations that limited its expansion into non-banking activities. These operations helped steady Security’s earnings when the traditional banking business was soft.

Meanwhile, First Interstate has been running into major problems with its geographic diversification. Since the late 1970s, the bank has suffered with loan problems at at least one of its out-of-state banks. First the bank was hit by problems in the Southwest, where the oil market suddenly foundered, leaving First Interstate’s Rocky Mountain units with steep losses. Then, after a much-ballyhooed merger with Allied Bancshares of Texas, First Interstate began posting staggering losses in the Lone Star state. And now, the bank’s Arizona operations are causing problems.

The bottom line: Security Pacific posted record profits in 1989. First Interstate will be lucky to avoid posting a loss for the year when it reveals its 1989 earnings, analysts said.

Its past and projected losses--and the beating they might deliver to the company’s stock--could make it virtually impossible for First Interstate to expand, and may force the bank to start another round of layoffs and cost cuts.

Security, meanwhile, says its retrenching days are largely behind it.

“We feel the successes we’ve had are transferable into other markets,” said Smith. “We are also facing an environment where there is increasing competition both nationally and internationally. There’s an argument to be made that says within this decade we will have to become a lot bigger to remain formidable.”