Fear Over Banks’ Plan to Merge : * Finance: The combining of B of A and Security Pacific has become a hot topic in the state of Washington.

For the state of Washington, it seems to be a case of the last-minute jitters. You can hear it on the floor of the state Legislature, see it in television advertising and read about it on the front page of Washington’s newspapers.

The nervousness is prompted by the pending merger of the two biggest banks here--California’s BankAmerica Corp. and Security Pacific Corp. Hold on, Washington seems to be saying. Is there enough tether to tame this looming new financial giant of the Pacific Northwest?

Ten years ago, Washington had no out-of-state banks. Now they dominate the state. And the impending combination of San Francisco-based BankAmerica, which operates here under the name Seafirst, and Los Angeles-based Security Pacific would create a mega-bank without modern precedent in the state. Combined, the two would hold nearly half of the commercial bank deposits in Washington.

BankAmerica has pledged to sell 69 branches here--nearly 20% of the 361 it would have from the merger--to try to overcome anti-trust opposition. Such a divestiture would reduce the bank’s share of commercial bank deposits to less than 40%.

Still, of all the states in the West, none would be so dominated as Washington by the new mega-bank that would emerge from the $4-billion union, the largest in U.S. banking history. The institution would rank second only to Citicorp in size.

And that explains why in recent weeks the state attorney general, the Legislature, bankers of all stripe and business executives from across Washington have been heard on the subject--some expressing fear, some offering reservations and some promising game competition.

Small and rural banks are hoping to capitalize on sentiment against big out-of-state institutions, particularly those headquartered in much-resented California, and win over new customers.

“For this bank, any such thing is good,” said Klaus Golombek, executive vice president of the National Bank of Bremerton, a small commercial institution with $40 million in deposits.

“The best thing for us is to be in between two giants trying to merge--it gets everybody riled up and upset,” Golombek continued. “So it gives us a pretty good window of opportunity. Any kind of disturbance helps us bring customers down here.”

The National Bank of Bremerton is within a block of a branch of Seafirst and Security Pacific, and not far from the offices of two savings and loans that have or are undergoing buyouts. All of the upheaval, Golombek said, has rekindled the interest of local citizens in local banking.

“They ask questions like, ‘How often do you change loan officers? Who do I have to ask to get decisions?’ ” he said.

Golombek offers the example of a family that had $610,000 in a non-interest bearing checking account at a branch of one of the banks controlled out of state. The storm clouds that have settled over banking in general prompted the family to look around and think more about its money.

“They weren’t insured, they weren’t getting interest, and they got mad,” he said. “They were walking around town with $100,000 checks opening accounts locally.”

Mergers of powerful interests often bring out such bravado in competitors. Whether it translates into more customers is yet to be seen. Both BankAmerica and Security Pacific argue that a stronger, merged bank will be in a position to offer customers more services, not less.

But in Washington state, there is a genuine regional pride and a fear of outside control that is not easily dismissed. This is a state, after all, where voters last November defeated a heavily favored ballot initiative to limit terms of congress members. The reason it was voted down? Incumbents portrayed it as a ploy by California to strip Washington of its seniority in Congress and thereby open the way to tap into Northwest fresh-water supplies.

For months, Puget Sound Bank, a Tacoma-based institution with $5 billion in assets, has been heavily advertising on television with a campaign that appeals to Washington’s provincialism. The ads list by name banks with out-of-state headquarters, such as Security Pacific. Washington residents who bank there will see their money end up in Los Angeles, the narrator warns. Oregon- and New York-based banks are also targeted.

Don Vandenheuvel, president and chief financial officer of the bank, said the campaign has been the most successful in Puget Sound history in attracting customers. A new series of ads in the same genre are being prepared, he said.

“We have no objections to the merger. We feel we would benefit from customer spinoff,” Vandenheuvel said. “There is a portion of the population that likes to support local ownership and local pride.”

Not so enthusiastic, however, are Washington state legislators, who have come to life suddenly on the merger. Earlier this month, anti-merger bills before both the state Senate and House of Representatives were gathering dust and given little chance of passage.

But unexpectedly last week, a bipartisan coalition of conservative Republicans and liberal Democrats in the House Commerce and Labor Committee gathered force behind a bill that seeks to limit the size of the new, merged bank to no more than 30% of the state’s commercial deposits. A second committee approved the bill this week.

“I call it the weird coalition,” said state Rep. Barbara Lisk, a conservative Republican who represents an apple-growing region near Yakima.

Lisk, like other members of the committee, said she is not necessarily opposed to the merger. But she wants to attach new conditions before the conclusion of regulatory review by federal officials.

Her condition for support is that state-chartered and community banks be given first right of refusal in the purchase of bank branches divested by BankAmerica.

As one who operates a 150-acre commercial apple orchard, Lisk said she is motivated by her experiences during the 1988-89 season when Washington apple growers suffered a big drop in prices after a widespread scare over the use of the pesticide Alar.

“What happened in a nutshell was that the bigger the banks were, the faster they bailed out on us,” she said. “What do they care about a corner grocery store in Toppenish?”

Yakima Chamber of Commerce General Manager Gary Webster said such sentiment is deeply embedded in the agriculture areas of the state. But, he added, it is not realistic to believe that local banks could carry the credit needs of farmers and ranchers, considering that so many of Washington’s banks besides Security Pacific and Seafirst are headquartered elsewhere.

“The desire may be there, but the reality may not,” Webster said. “We’re not going to walk away from institutions with outside ties. But we’re saying, ‘You’ve been a little too impersonal.’ ”

Rep. Mike Heavey, a Seattle Democrat, is chairman of the House committee and a newfound supporter of the pending legislation to restrict the merger, even though federally chartered banks are not subject to direct state regulation.

“I’m a lawyer, and my first thought was, ‘Hey, this is a federal matter.’ But the more I thought about it, the more I came to realize, ‘No, the state of Washington has a stake in this,’ ” he said. “We have to make sure the big boy on the block is not going to be the big bully on the block.”

Heavey also said he is not necessarily opposed to the merger. But he does believe that the state should debate just how large it should let a single bank be. “I’ve put down the 30% limit, but I’m open. Maybe I can be convinced the right number is 40% or 25%. I want a public discussion.”

So far, Heavey is getting his way. Seattle newspapers have played the legislation and other recent merger developments as front page news.

The Seattle Times editorialized Wednesday in favor of the legislation under the headline: “State lawmakers belong in bank merger debate.” The Tacoma Morning News Tribune saw it differently, saying the “bill foolishly involves legislators in a job that should be left to bank regulators, the Justice Department and the state attorney general.”

For its part, BankAmerica argues that deposits in thrifts and credit unions such as a huge one used by Boeing employees should count in the equation. If they are, the bank argues, BankAmerica’s share of the market in Washington state would be barely over 25% after it gets rid of the branches it plans to sell.

The bill is expected to pass the House by next week, Heavey said, and the Senate will have until March 12 to act.

Regardless, Washington state legislators cannot directly stop the merger. The only blessings the banks need are from the Federal Reserve Board and the U.S. Justice Department.

But the backlash in Washington could delay the completion of the merger or unleash enough public pressure to force BankAmerica officials to sell more branches than they want to. The chairman of Seafirst was quoted after a recent editorial board meeting with the Seattle Post-Intelligencer as saying passage of the legislative restrictions would “kill” the merger in Washington and force BankAmerica to divest all of its Security Pacific holdings here.

A bank spokeswoman later backpedaled. If the bill passes and is ruled constitutional, the “one of several options” for BankAmerica would be the divestiture of Security Pacific, she said.

Already, the state attorney general is reviewing BankAmerica’s pending plan to sell 69 branches here in preparation for filing comments later this month before the Fed. Officials with the department are also threatening to sue to force BankAmerica to sell more branches if a satisfactory agreement cannot be worked out

Carol Smith, assistant attorney general on the case, said the pending Statehouse legislation will have “little effect” on her filing. “We’ve expressed our concerns about their divestiture proposals all along,” she said.

Staff writer James Bates in Los Angeles and researcher Doug Conner in Seattle contributed to this story.