When Giants Move, the Region Shakes : Bank merger plan worries Southern California

Shareholders of Wells Fargo & Co. and First Interstate Bancorp may be giddy at the prospect of a merger of the two companies, but the thought of an amalgamation of California’s third- and second-largest banks--to form the nation’s eighth-biggest bank--gives many employees and customers the jitters.

The deal is far from done--First Interstate is fiercely resisting the hostile takeover attempt--but many Southern Californians already are worrying about a loss of jobs, services and bank branches.

A RARE EVENT: Hostile takeovers in banking are unusual. However, unless First Interstate finds a better offer for its shareholders it may have to accept the Wells Fargo bid. A merger would be subject to approval by U.S. bank regulatory agencies, which would review competition and consumer issues.

Wells Fargo’s bid for First Interstate is the latest in a recent spate of successful and attempted bank mergers. Slow revenue growth and the passage of new federal banking legislation that allows interstate bank mergers have triggered the trend. BankAmerica Corp., California’s largest, reportedly is interested in the North Carolina-based Nationsbank. Another proposed, but friendly, merger is the combination of Chemical Banking Corp. and Chase Manhattan Corp.

The rationale for consolidation is efficiency, cost and market breadth. For Wells Fargo, whose 19,400 employees are nearly all in California, First Interstate offers a dominant market share in California plus a reach into 12 other western states. First Interstate employs 27,901 in the 13 western states.

Wells Fargo has said the merger would result in a net saving of $700 million, mainly from shutting branches, laying off workers and combining operations. Though the San Francisco-based company, known as a lean operator, has not detailed downsizing plans should the merger go through, estimates put job cuts at roughly 7,500, most of them in Southern California, home to the Los Angeles-based First Interstate. With the region’s economy not yet recovered from the prolonged recession, a new round of job losses would be painful.

LOSS TO CUSTOMERS: Fewer branches would mean less competition for consumer deposits and banking services. The potential impact on fees for various banking services is unclear. Loan availability for homes and businesses, especially in the inner city and minority communities, might be reduced. Banking regulators should seek assurances that the merged banks will continue to meet federal requirements and will amply serve these communities under the Community Reinvestment Act.

Of course difficult questions about competition and equity extend far beyond the possible combination of Wells Fargo and First Interstate; they would apply to any major bank merger. It is up to U.S. bank regulatory agencies--whose leaders are appointed by the President and which are, in part, subject to congressional oversight--to be the final arbiter of antitrust and consumer protection issues presented by such consolidations.