A Superbank Is Hatched : Two rival banking institutions plan to merge

The often painful consolidation of the banking industry has hit home in a big way with the surprise announcement that two of California’s oldest and best known banks seek to merge. Archrivals Bank of America and Security Pacific plan to combine to create a superbank that will be second in size only to Citicorp of New York.

The purpose is to streamline and to compete better in international financial circles. Sadly, there’s little doubt that a significant portion of the expense of the $4.5-billion merger would be funded through employee cutbacks. For consumers, the merger probably would mean fewer branches, perhaps more efficient but also perhaps more likely to be fee-conscious.

The big bank marriage would actually be consummated by their parent companies, San Francisco-based BankAmerica Corp. and Los Angeles-based Security Pacific Corp. The proposal would result in the largest bank merger to date and the third major bank combination in less than a month. Chemical Banking Corp. and Manufacturers Hanover Corp. announced their merger in mid-July. A week later two Southern banks, NCNB Corp. and C&S;/Sovran Corp., said they would combine.

Security Pacific, faced with a rising volume of problem real estate loans and declining profits, had been seeking a merger partner, but it was believed to be Wells Fargo.

Driving the wave of mergers is a myriad of problems. Banks have been especially hit hard by bulging portfolios of bad loans, especially in real estate. The recession and the stricter banking regulations also contributed to pressure on the banks. By merging, banks can cut costs substantially by eliminating duplications in staff, services and branches. For example, the combination of Chemical and Manufacturers will cost 6,200 jobs.

Bank of America and Security Pacific expect savings of $1 billion within three years by consolidating operations. Much of that savings might come in the layoff of thousands of workers and the closing of hundreds of branches. Because much of the overlap of branches is in Southern California, the merger probably would cause the most pain here.

The banks will not say exactly how many employees would be affected by the downsizing of their massive operations. After the merger is completed in six months, the new company--to be known as BankAmerica--would set aside reserves of $700 million for “restructuring,” and that would probably include cutting out unnecessary staff.

It’s unrealistic to expect the biggest bank merger in U.S. history would go unnoticed by bank customers. The best to be hoped for the consumer is that the inconveniences are brief and minor.

But while the short-term pain cannot be ignored, in the long term this merger would position the state’s biggest bank to compete not only with U.S. giants like Citicorp but also with the big Japanese and German banks. That would help not only Los Angeles and other major cities but all California--as the state positions itself to compete in the emerging world economy.