Merger Rumors Lift Security Pacific and Wells Fargo Stocks
Shares of Wells Fargo & Co. and Security Pacific Corp. soared Friday as speculation heated up again that the two giant California banks are headed for a merger.
Neither bank would comment on the latest rumors, leaving analysts, investors and employees groping for the subtlest of signs. Lehman Bros. analyst James M. Rosenberg, for example, issued a report saying that Security Pacific’s refusal to comment indicated “that there is some truth here” since it would be easy for the bank to deny the rumors.
But two other analysts, Ronald I. Mandle of Sanford C. Bernstein & Co. and Donald K. Crowley of Keefe, Bruyette & Woods Inc., expressed skepticism at the reports, as did some competitors.
“It’s a deal that makes sense, but a lot of deals that make sense don’t get done. There are a lot more rumors out there than deals,” Mandle said.
Wells Fargo’s stock jumped $6.375 a share to $76.625 after trading as high as $77.25. Security Pacific rose $4.125 to $32 after trading as high as $33.125. Both are traded on the New York Stock Exchange.
Security Pacific, based in Los Angeles, confirmed on Jan. 22 that it had held talks with San Francisco-based Wells Fargo late last year, but added that they had broken off and said that no new talks were contemplated. Security Pacific added that the two banks have periodically discussed merging over the past 25 years. Wells Fargo has refused all comment, citing company policy.
Rumors were especially strong early this week among Security Pacific employees, with reports circulating that lawyers for the two banks were meeting to work out an agreement. Nearly every day, rumors have surfaced that an announcement was minutes away.
The latest speculation was fueled by a report Thursday by market commentator Dan Dorfman, who said the talk among some Wall Street traders would be that Wells Fargo would buy Security Pacific for $40 a share. But Dorfman qualified his report by adding that it “is nothing more than street talk” among traders.
Most analysts and former executives with the banks believe a merger is a good idea. Pressures to merge are building in the banking industry as banks seek to bolster their capital. Annual cost savings of a merger have been estimated at $800 million to $1 billion, but could result in the elimination of some 12,000 jobs.
But analysts also are uncertain if the two sides could ever reach a mutually acceptable agreement because it would involve such difficult decisions as the sharing of power among executives and deciding whose employees will bear the brunt of the layoffs.
Analysts strongly discounted the $40-a-share scenario in the Dorfman report, saying that any merger would probably be a stock swap rather than an outright buyout. Most likely, they said, would be the formation of a third company, with stock in that company swapped for Security Pacific and Wells Fargo shares.
At a conference in Newport Beach on Friday, Richard M. Rosenberg, chief executive of rival BankAmerica Corp., said that if a Security Pacific-Wells merger happens, “I don’t think it alters the competitive picture dramatically.”
