Fed Approves B of A, Security Pacific Merger : Banking: The ruling represents the last major hurdle before the nation’s biggest bank merger is final.
The Federal Reserve Board on Monday approved BankAmerica Corp.’s acquisition of Security Pacific Corp., clearing the way for completion of the biggest bank merger in the nation’s history.
The Fed ruling carries with it a requirement that BankAmerica sell 215 branches in the West to resolve federal and state antitrust concerns and bolster lending and bank services to low-income and minority customers. BankAmerica previously agreed to meet those conditions.
“Efforts by BankAmerica and Security Pacific to help meet the credit needs of all segments of the communities served by these banks, including low- and moderate- income neighborhoods, are generally satisfactory,” the Fed said in a lengthy order issued after its 7-0 vote to approve the transaction.
But it added that there are “areas for improvement” in BankAmerica’s performance, which will be met by expanding checking and other services to low-income customers and by the bank’s recently announced goal of $12 billion in loans over 10 years for housing, small business and other activities in low-income and minority neighborhoods, the report said. Under federal laws, the Justice Department gets another 30 days to review the merger for any final concerns. As a result, the combination won’t be final for at least a month, with late April or early May the most likely date the deal will close.
BankAmerica Chief Executive Richard M. Rosenberg called it “the most extensively scrutinized merger in the history of our industry” and added that combining the two banks is expected to take about a year.
The blockbuster deal, valued at nearly $5.5 billion based on Monday’s BankAmerica closing stock price of $45.625 per share, has taken seven months to work its way through a regulatory system since it was first announced Aug. 12.
It encountered its stiffest opposition in Washington state, where concerns were highest that the merged bank would dominate the market.
With the combination, San Francisco-based BankAmerica, which will have about $190 billion in assets, will regain its place as the nation’s second-largest bank next to Citicorp. Ranked by deposits, it will be the largest bank in California, Washington and Nevada, second-largest in Arizona and third-largest in Oregon.
Approval came as no surprise. BankAmerica has been working with Fed officials since the days leading up to the public announcement that the two banks would combine. The merger had been virtually assured when the Justice Department last month said it would not oppose the deal on antitrust grounds after BankAmerica agreed to boost the number of branches it would sell in Washington state, California and Arizona.
Fed officials generally have viewed mergers positively, helping to make the nation’s banking industry healthier and reduce overcapacity. BankAmerica estimates that the combination will result in $1.2 billion in yearly savings within three years.
About 60% of the savings is expected to come from cuts in personnel, with the rest from such factors as savings from building leases. Last week, BankAmerica said it expects to eliminate 10,000 to 12,000 jobs in the first three years.
The acquisition comes at a crucial time for Los Angeles-based Security Pacific, which has been hit hard the past two years by problem real estate and corporate loans.
In preparation for the union, Security Pacific has undergone an extensive housecleaning of its loan problems.
In the past two quarters, the bank has posted $917 million in losses and added nearly $2 billion to its cushion to cover possible losses on loans.
Security Pacific lost $765 million last year, contrasted with a profit of $161 million in 1990. BankAmerica earned $1.12 billion in 1991 and $1.11 billion in 1990.
In its order, the Fed downplayed the impact the merged bank will have on competition in the Los Angeles market. Security Pacific is the biggest bank in the Los Angeles market, with $24.4 billion in deposits, about 15.5% of the total. BankAmerica ranks second, with $19.3 billion in deposits, a 12.2% market share.
Even after the merger, the Fed report noted, “at least 266 bank and thrift competitors, including the largest banks and thrifts in the state, would remain in the market.” The region “also is attractive for entry” by new competitors, the report said.
To blunt criticism of the deal, BankAmerica set the $12-billion, 10-year lending program in low-income and minority areas.
Even still, the merger became a lightning rod for action by community groups, who argued that the size of the deal alone justified further conditions being set by the Fed.
Robert L. Gnaizda, a lawyer with the San Francisco-based Greenlining Coalition, said he believes that the public scrutiny and the criticism BankAmerica took during Fed hearings on the subject will help keep pressure on the bank to deliver on its promises.
The Fed did set a number of conditions related to the bank’s low-income and minority programs, including incorporating some of Security Pacific’s programs.
For example, BankAmerica will upgrade its basic checking service with a minimum opening balance of $25 and no monthly balance required. It will allow customers to write more checks and have two free transactions each month at branches.
Bank of America goes back to 1904 when A. P. Giannini started what was then known as Bank of Italy in San Francisco’s North Beach, making loans to the city’s growing immigrant population. It was the largest bank in the United States for much of the period after World War II.
Security Pacific, long a cornerstone of Los Angeles commerce, descended from the city’s first incorporated bank, Farmers & Merchants Bank, founded in 1871.
NEXT STEP
While Federal Reserve Board approval is the last major hurdle before BankAmerica Corp. can acquire Security Pacific Corp., there is a 30-day waiting period during which the Justice Department makes a final review of the deal. In the interim, bank customers will see no changes in their services. Security Pacific customers can continue to use their checks and automated teller cards and make loan payments as they normally do. BankAmerica has yet to release a timetable spelling out when Security Pacific customer accounts will be changed over to Bank of America accounts, new checks will be issued and other matters affecting customers will be resolved. In most bank mergers, such changes can take several months because extensive computer work must be done first.
James Bates reported from Los Angeles. Robert A. Rosenblatt reported from Washington.
