A New Deal fo First Interstate : RIVALS : Pressure Renewed on Wells Fargo to Find Suitor

First Interstate Bancorp’s proposed merger with First Bank System Inc. puts pressure on Wells Fargo & Co. to raise its bid for First Interstate or quickly find another marriage partner in the fast-consolidating banking industry, analysts said Monday.

The deal also keeps pressure on other California banks and thrifts--such as BankAmerica Corp., Glendale Federal Bank and others--that were hoping that a Wells Fargo takeover of First Interstate would remove the latter as a rival in the competitive California banking scene.

The deal also could spark other out-of-state banks to move more quickly in purchasing California banks and thrifts as a way of getting a foothold in the market.

The biggest impact of a First Interstate-First Bank System deal would be on Wells Fargo. Despite being one of the nation’s most profitable and well-run banks, Wells Fargo mostly operates in California, and that is becoming an anachronistic strategy as interstate banking accelerates nationwide, they said.

Indeed, a key reason why San Francisco-based Wells Fargo launched its unsolicited bid for First Interstate three weeks ago is that First Interstate, based in Los Angeles, operates in 13 western states.

But a First Interstate merger with Minneapolis-based First Bank System would create the nation’s ninth-largest bank with assets of $92.4 billion and 1,514 branches spread across 21 states in the West and Midwest.

If that merger goes through, it “puts some real pressure on Wells Fargo to do another deal, either to beef themselves up in California or to break out of California,” said banking consultant Bert Ely in Alexandria, Va.

The First Interstate-First Bank pact also would keep First Interstate as a major player in California banking, armed with the extra financial resources brought by First Bank.

“From a competitive viewpoint, I would prefer to see the Wells Fargo acquisition” of First Interstate, said Gene Galloway, executive vice president for retail banking at Sanwa Bank California.

He noted that when California banks merge, some of their customers get alienated and seek service elsewhere. The banks “go through a time when they’re digesting the acquisition, and that leaves the market untended for people like us to pick up disenfranchised customers,” Galloway said.

But with First Interstate still competing with BankAmerica, Wells Fargo and others, California consumers would continue to have more branches and automated teller machines at their disposal than they would if Wells Fargo absorbed First Interstate.

First Bank Chairman John F. (Jack) Grundhofer also emphasized in an interview with The Times that his bank’s offer would keep First Interstate strong in California, whereas a Wells Fargo purchase would erase a big bank from the western landscape. And the continued presence of First Interstate means all California banks will have to compete harder for consumers, he said.

Stephen Trafton, chairman of Glendale Federal Bank, said First Bank System’s bid for First Interstate will “hasten the ultimate” effort of other out-of-state banks to invade the West by purchasing California banks and thrifts.

In the meantime, Trafton said he also would prefer that Wells Fargo remove First Interstate as a competitor in California. But even First Bank’s buyout of First Interstate could help GlenFed and others grab customers from First Interstate, he said.

“This deal is more important to Wells Fargo than to First Bank System,” Ely said. “First Bank System has other options out there.”