Bid for a California Banking Giant : MERGER OUTLOOK : More Hostile Bids Likely as Trend to Consolidate Grows
The era of the friendly merger in the banking industry, where big institutions reach deals with smiles and handshakes, may be giving way to a new wave of hostile and combative takeovers.
“Nobody wants to be left at the gate” in the new age of potent mega-banks, according to Edward C. Furash, chief executive of Furash & Co., a financial consulting firm.
The hostile takeover has traditionally been rare in the financial world because, as Furash noted, “banking is a very gentlemanly business.”
In fact, the last big contested deal was in 1988, when the Bank of New York took over Irving Trust after a yearlong fight. In 1986, Great Western launched an unsuccessful bid to take control of Citadel, a major thrift holding company, after a friendly merger deal turned sour, and First Interstate Bancorp the same year launched a hostile--and also ultimately unsuccessful--bid to buy BankAmerica.
If amicable deals can be arranged, as in the pending merger between Chase Manhattan and Chemical, that’s fine. But if negotiations bog down, the techniques of the suitors could increasingly start turning from wooing to demanding, industry experts say.
Even the most conservative organizations such as Wells Fargo & Co. recognize that if they do not make bold moves, they may be left behind in the race to grow, Furash said.
One deadline is July, 1997, when federal legislation will permit any bank to open a branch anywhere in the country, expanding beyond the current ability of banks to acquire other banks. Only the specific action by a state legislature can keep the traditional boundaries in place.
“Everybody wants to be ready” for all-out, nationwide competition, said Diane Casey, national director of financial regulatory issues at Grant Thornton, an accounting and management consulting firm.
“A wave of consolidation” is breaking over the world of banking, she said. “There are going to be more hostile mergers, and also more arranged mergers.”
The plan to combine the big California banking institutions appears virtually certain to win approval from federal regulators, but Wells Fargo must first get the necessary shareholder OKs.
Wells Fargo cannot file a formal application with the Federal Reserve Board, the overseer of bank holding companies, until it gains a majority of First Interstate shares. But Wells wouldn’t have embarked on the public bid for another big bank unless management was confident that regulators would eventually approve the deal, bank experts say.
“I’m sure there have been quiet communications with the regulators to avoid any potential difficulties,” Casey said. “You do not announce something like this if there is going to be a problem.”
The other regulators involved would be the Comptroller of the Currency, which would oversee the applications to combine the banks within the holding companies, and the Justice Department, which handles antitrust issues.
As in many of the recent friendly mergers, the Justice Department might require the sale of branches in some markets because the combined bank could have an excessive share of local business lending.
Regulators would also look at the role of Wells Fargo and First Interstate in meeting the credit needs of local communities, small business and minorities, as required under federal law.
“There may be some nits here and there but not anything significant,” said Bert Ely, head of Ely & Co., an Alexandria, Va., consulting firm.
