A New Deal for First Interstate : THE IMPACT : Where This Offer Would Leave L.A.
Los Angeles loses a prestigious corporate headquarters but celebrates the prospect of retaining thousands of jobs. And First Interstate customers can still expect to bank at their favorite branch--and get more direct-mail pitches for credit cards.
These are among the likely effects if the proposed merger announced Monday between First Interstate Bancorp and First Bank System Inc. of Minneapolis ultimately takes place. Many view the deal as vastly preferable to a takeover of First Interstate by San Francisco-based Wells Fargo & Co.--a union that would have resulted in far more overlapping and short-term damage to the region’s economy.
Los Angeles Mayor Richard Riordan, who had opposed a Wells Fargo takeover of First Interstate, hailed the agreement with First Bank: “The merger will help maintain the spirit of competitiveness in California banking and preserve the culture of corporate responsibility that comes from having a major bank in Los Angeles.”
Although a Wells takeover would result in a greater annual savings--$700 million against $500 million--a union of First Interstate and First Bank would clearly be a smoother fit with less overlapping. That combination would expand the geographical reach of each bank, and First Interstate’s large retail bank network would complement the base of commercial customers and larger credit card operations First Bank boasts of.
However, it remains to be seen how First Interstate’s emphasis on service and large bureaucracy might mesh with First Bank’s reputation for running a lean operation. Complicating it all would be the management of a far-flung empire by two strong-willed executives situated 1,500 miles apart.
Despite such potential drawbacks, First Interstate--seeking shelter from Wells Fargo’s hostile $10.2-billion bid--accepted a bear hug from First Bank, a well-regarded regional institution that has experienced heady growth thanks to 23 acquisitions in recent years.
The company that would result from the union, with operations in 21 states, would keep the First Interstate name--bank executives said “First Bank” has proven to be too common--but the corporate headquarters would be in First Bank’s home city of Minneapolis. The board of directors would be evenly split, with representatives of each bank holding half the seats.
With the banks’ executives stating that the combined payroll of 41,000 would be trimmed by 6,000 to help produce $500 million in savings a year, analysts predicted that upper- and mid-level managers at First Interstate would be most affected.
The prospects would be brighter for tellers and other mid- and lower-level employees. Most jobs eliminated would be administrative and data-processing positions.
Bank employees applauded the proposed deal.
“It’s going to be good for the California economy,” said Elizabeth Rodriguez, a First Interstate corporate banking officer. “I think everybody was pretty excited this morning.”
“It’s a positive move,” said Helen Huerta, another corporate banking officer. “More people in California will have an opportunity to keep their jobs or maybe even get better jobs.”
Jack Kyser, chief economist at the Economic Development Corp. of Los Angeles County, said the merger would have a moderate effect on Southland jobs, as a greater number of job losses would be likely in Minneapolis.
Under such a deal, Kyser said, departments that might overlap include advertising, accounting and public relations.
That leaves some employees worried.
“Mergers always mean a loss of jobs,” said Patricia Packer, an investments officer at First Interstate’s Newport Beach office. “So people always will have some concern.”
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According to state government figures, employment at banks, savings and loans and other depository institutions in California has been dropping since hitting a peak of 274,200 in 1990.
In 1994, the number was 233,500; by last month, it had slid to 220,100.
For Los Angeles real estate owners, a First Bank System deal would presumably be more welcome than a Wells Fargo takeover.
First Interstate occupies nearly a million square feet of space there, including the headquarters offices it leases in the 73-story First Interstate World Center.
Real estate brokers had feared that a Wells Fargo-First Interstate combination would leave a huge amount of vacant space resulting from a shutting of redundant operations.
Now, however, First Interstate Chairman and Chief Executive William E.B. Siart plans to remain in Los Angeles as president and chief operating officer of the merged entity, with responsibility for running the core businesses: retail, corporate and private banking; payment systems, and trust and investment management.
And he and First Bank CEO John F. (Jack) Grundhofer vowed to maintain First Interstate’s “strong level of community support.”
Big savings could also be achieved by switching First Interstate’s management structure from one broken down along geographic lines at autonomous state banks to one structured along product lines, as at First Bank.
“The implication seems to be that many of First Interstate’s highest-paid senior executives will either leave the bank or be transferred to Minneapolis,” said Steven Schroll of Piper Jaffray Securities in Minneapolis.
“On the other hand, to make the . . . transition work, First Interstate will have to keep a lot of its line managers [and lower-level people] in place, under Siart.”
That suggests that one likely effect of the deal would be that the First Interstate World Center would suddenly develop some significant vacancies, as would First Interstate’s older Downtown tower (the scene of a 1988 fire).
Even so, the merger would appear to be far better for the Los Angeles economy than the previously proposed hostile purchase of First Interstate by Wells Fargo. First Interstate employs more than 5,000 people in Los Angeles County, and a merger with Wells Fargo promised Draconian job cuts.
Should the First Bank deal proceed, customers can expect the First Interstate branch and automated teller machine networks to remain largely intact.
But they could also anticipate some beefed-up marketing efforts to lure them to new products and services. First Bank is a leader in several areas--notably credit cards for individuals and companies--in which First Interstate has little or no expertise.
The state of California, for example, is a prime customer of First Bank’s corporate purchase-card business.
The service provides credit card systems that let businesses manage their purchases and track them.
Managers can devise budgets and distribute credit cards with preset spending limits to departments or individual managers.
First Bank is also considered a leader in the handling of credit card transactions for stores. Siart said he had considered outsourcing this function to First Bank even before the two companies had started talking about a merger.
Despite all talk about savings and added revenue, at least one analyst remained skeptical of the banking merger frenzy.
“To me, the best outcome would have been for First Interstate to remain independent, but I’m in a lonely boat,” said James Marks, an analyst with the Sutro & Co. investment firm in San Francisco. Eventually in banking “size is going to be a hindrance, not a help. The need to remake yourself constantly is going to become so important.”
With consolidation and cost-cutting the watchwords of their industry, most bank employees realize that they need to be prepared.
“I think there’s a feeling of relief,” said Gerry Wagner, a vice president of First Interstate capital management.
But “in this business . . . you sort of keep your resume up to date.”
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Times staff writers James S. Granelli, Thomas S. Mulligan and Jesus Sanchez contributed to this report.
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More Bank Merger Coverage:
* First Interstate spurns Wells Fargo, gets offer from First Bank System. A1
* Wells Fargo under pressure. D6
* Minimal customer impact seen. D6
* Notable quotes about deal. D6
* First Interstate’s deal odyssey. D7
* Shareholders weigh options. D7
* Profile: Hard-working Siart. D7
* Firms’ strengths, weaknesses. D7
