First Interstate, KKR May Buy Banks, Thrifts : S&Ls;: The partnership’s first target may be ailing First City in Houston. Southland institutions could also draw bids.

First Interstate Bancorp and the giant investment firm Kohlberg Kravis Roberts & Co. indicated Tuesday that they may team up to buy financial institutions in western states where the bank now operates.

Sources said the buyout team’s most immediate target is ailing First City Bancorp in Houston. The disclosure also raises the possibility that First Interstate and KKR may bid on HomeFed, the troubled thrift in San Diego that is for sale, or CalFed and Glenfed, two other struggling Southland thrifts.

First Interstate, the Los Angeles parent of First Interstate Bank of California, said talks with KKR about cooperating on bank and thrift acquisition are in preliminary stages. The bank said only that the two sides have “talked about the possibility of having discussions” in which KKR would provide financial assistance to First Interstate in transactions.

In a filing with the Securities and Exchange Commission, KKR said that any such an effort would involve the purchase of more First Interstate common stock or other securities. KKR now owns 9.7% of First Interstate’s stock.

But linking up with First Interstate would present some potential problems for KKR. The New York investment firm owns such industrial firms as RJR Nabisco and thus must carefully structure its banking investments so it does not run afoul of federal laws that bar industrial firms from owning banks.

Last year, KKR succeeded in doing that when it teamed up with the Fleet/Norstar bank in Rhode Island to buy the failed Bank of New England in a sale arranged by regulators. That deal was criticized by some bankers, who complained that non-banking firms are moving rapidly into banking while banks remain under tight restrictions on activities they can enter.

Any deal that would boost KKR’s ownership of First Interstate to more than 10% would need approval from federal banking regulators, and might also subject the firm to additional regulation by the Federal Reserve Board. KKR acknowledged that it might be difficult for it to continue claiming--as it has in legal filings--that its stake in First Interstate is strictly for investment purposes.

As a result, analysts and banking experts said that a deal most likely would be structured so that KKR could provide money by buying some sort of securities that would not increase its ownership control in First Interstate. KKR would say only that it has no intention of owning more than 10% of the bank for now, adding that it also does not intend to influence First Interstate’s management decisions.

“These guys at KKR are very well versed in this. I suspect they won’t do anything foolish,” said H. Rodgin Cohen, bank merger specialist at the New York law firm Sullivan & Cromwell.

First Interstate’s emergence as a potential buyer of banks is ironic since it has been seen as a possible takeover target because of large real estate losses. It lost $288 million in 1991, but expects to return to profitability this year.

First Interstate already operates in Texas and its possible interest in First City, a government-assisted acquisition from the 1980s that went sour, comes as other major candidates are dropping out.

In an interview Tuesday, Banc One Chairman John McCoy confirmed that the Columbus, Ohio-based bank did not bid on First City. Previously, NationsBank in North Carolina said it had no plans to bid. In addition, interest by other major banks, such as BankAmerica and Chemical Banking, is said to have cooled as well unless federal regulators come up with a different plan to sell it.

As for HomeFed, the chances of First Interstate and KKR bidding are cloudy, since the expected sale is at least six months away. Several major bidders, among them Great Western Financial and H. F. Ahmanson, have been identified as interested in buying it.

San Diego County Business Editor Chris Kraul contributed to this report.