BankAmerica Under Pressure to Reduce Branches : * Merger: A Seattle legislator says the bank’s acquisition of Security Pacific would lead to unfair market dominance.
Pressure on BankAmerica Corp. to sell more bank branches in Washington state as part of its acquisition of Security Pacific Corp. increased Friday when a legislative committee approved a bill that would limit the percentage of bank deposits an institution can control there.
But Washington officials said the legislation’s future is uncertain, noting that an identical bill died earlier in the state’s Senate. Nonetheless, the measure, which passed 11-0 and is now expected to be considered by Washington’s House, shows the growing controversy in Washington over the merger of San Francisco-based BankAmerica and its Los Angeles rival.
The merger, the largest in banking history, would create the nation’s second-largest bank.
“We want to shift the burden of proof to the bank to prove they aren’t violating our Consumer Protection Act,” said Sen. Janice Niemi, a Seattle Democrat who has been the main legislator behind the bill. “Their market share will be so extraordinary.”
The approval by Washington’s House Commerce and Labor Committee led to some suggestions early Friday that the entire merger could be in danger. But banking executives, lawyers, analysts and Washington officials said Friday that the development poses no threat to the overall plan to combine.
Instead, the most likely scenarios involve a delay of several months in completing the merger, a court battle over combining the two bank operations in Washington or BankAmerica yielding to the pressure by selling additional branches in the state.
BankAmerica already has proposed selling 69 branches with $2.5 billion in deposits as part of a plan to sell $7 billion in deposits throughout the West. Antitrust issues are much less of an issue in California because the banks have much more competition.
The proposed bill would limit to 30% the commercial bank deposits an institution could control in Washington. The two banks have about $15 billion in deposits combined, or nearly half of the commercial bank deposits statewide. But a BankAmerica spokesman noted that the amount is only about 30% of all deposits if credit unions and thrifts are counted, as BankAmerica argues they should be.
BankAmerica’s divestiture plans would lower the commercial bank deposits the banks control to less than 40% of bank deposits, and about 26% of all financial institution deposits. Those fighting the current merger plans argue that the appropriate measurement should be the new bank’s share of commercial bank deposits, which they argue would be as high as 60% in key areas such as Seattle.
Washington has no power to approve or deny the overall merger, which must receive the blessing of the Federal Reserve Board and the Justice Department. Whether it can sue to force the bank to divest more is uncertain.
Banking lawyers said it is unclear whether laws permitting states to sue over antitrust issues in mergers such as grocery stores or gasoline stations apply to banking because of special federal banking regulations. “It is a murky area,” said H. Rodgin Cohen, a partner with Sullivan and Cromwell in New York.
But Carol Smith, an assistant attorney general in Washington, said state lawyers believe that they can challenge the merger under antitrust laws. However, she said, it is unlikely that state officials will seek to prevent the combination of operations in the state; instead, they will probably just seek further divestitures.
Bank analysts estimated that BankAmerica might have to sell $2 billion to $4 billion in deposits if it has to meet the stricter law. They added that the merger will still be attractive to the two banks because of the huge cost savings they can realize from combining operations in California and other states.
On the New York Stock Exchange, Security Pacific’s shares closed down 62.5 cents at $33.875. BankAmerica’s shares fell 25 cents to $40.375.
