Hawking Wells Fargo : CEO Paul Hazen Seeks to Sell Future of Bank to Wall Street

For soft-spoken Paul Hazen, chairman and chief executive of Wells Fargo & Co., cheerleading doesn’t come easily.

“By character and by nature, we’ve been an understated bank,” Hazen said in a recent interview. “We haven’t gone out of the way to expose ourselves.”

But the low-key approach ceased to be an option Oct. 18 when San Francisco-based Wells went public with its hostile takeover bid for First Interstate Bancorp. Hazen is now in a battle to convince investors that Wells is a better long-term partner for First Interstate than its chosen suitor, First Bank System Inc. of Minneapolis.

In New York today, in the Sky Club atop the Metropolitan Life Building, Hazen and several lieutenants will stage Wells’ most elaborate presentation in years for Wall Street banking analysts. The point of the “dog-and-pony show,” as such performances are known in the trade, isn’t merely to argue the merits of the takeover deal, but to sell the Street on the future of Wells Fargo itself.

“This is their big moment,” said analyst George M. Salem of Gerard Klauer Mattison & Co. “With the right show, they could increase the gap between First Bank’s bid and their bid.”

Salem was referring to the price difference indicated by the two banks’ offers for First Interstate. As of the close of trading Wednesday on the New York Stock Exchange, Wells’ offer of two-thirds of a share of its stock for each First Interstate share came to $145.67. First Bank’s bid of 2.6 shares per First Interstate share totaled $136.50.

Although a vote by First Interstate shareholders on the First Bank merger offer is still at least two months away, Salem said a continued widening of the price gap would put pressure on First Bank and could even scuttle the planned marriage.

Perhaps the most important point that Wells executives must address was raised recently by First Interstate Chairman William E.B. Siart, who said Wells follows a “grind it down” strategy of slashing costs and buying back stock, rather than boosting revenue by expanding its businesses.

However Hazen may feel about letting an opponent frame the debate, he is treating the strategy issue seriously.

Based on Hazen’s approach in an interview with The Times, Wells will answer by illustrating how it has pumped up revenue and profitability in such areas as retail banking and small-business lending.

Wells has pushed harder than perhaps any other U.S. bank to offer customers a wider (and cheaper) variety of alternatives to the traditional bank branch, including supermarket, telephone and computer banking.

While cutting its traditional branch network over the last two years, Wells has increased its total number of outlets by putting more than 350 mini-branches in Ralphs, Vons, Safeway and other supermarket chains across California, each staffed by a banker with a powerful laptop computer.

Meanwhile, Wells has become the nation’s highest-volume small-business lender with an approach that analyst Raphael Soifer of Brown Bros. Harriman calls “a highly automated cookie cutter.”

Wells realized that a big problem with small-business loans was that it was so expensive to underwrite them--or analyze their risk--one at a time. Thus, the bank devised a computer model for risk-profiling that enables it to pre-approve loans in much the same way that consumers are pre-approved for credit cards. The process sharply cut underwriting costs and made small-business lending one of Wells’ most profitable lines.

Although the ballots in the coming shareholder vote will mainly be cast by the portfolio managers for the institutions that hold the bulk of First Interstate’s shares, those managers often take their cues from Wall Street analysts. That is why today’s meeting matters.

But Wells’ top brass has also been moving on many other fronts to promote its campaign. On the political front, both Wells President William F. Zuendt and Hazen have met separately with Los Angeles Mayor Richard Riordan, who has sided publicly against Wells, saying the First Bank deal would result in fewer Southern California layoffs.

Hazen said Riordan, a career businessman, has a sophisticated understanding of the forces that have been driving the bank merger wave and realizes that First Interstate’s staff will shrink whether Wells, First Bank--or anyone--acquires it.

“He was very reasonable,” Hazen said, adding that he didn’t necessarily convert the mayor to the Wells camp.

On the legal front, Wells has used regulatory filings and court documents to tell its story and to attack various aspects of the First Bank bid, particularly its aggressive and controversial repurchase of shares following the announcement of the merger agreement.

Hazen also has been in regular contact with Warren E. Buffett, the Nebraska financier whose Berkshire Hathaway Inc. is Wells Fargo’s largest shareholder, with more than 13% of the stock. Hazen said he dropped in on Buffett in Omaha last week on his way somewhere else. Hazen did not dispute an anecdote recounted by Siart in a Securities and Exchange Commission filing that Buffett at one point kept Wells from raising its bid to 0.68 share--a price Siart said his board would consider.

“I’m not going to do anything he doesn’t approve of,” Hazen said, but he quickly added of Buffett, “He not only is not running the company, but he’s not making any decisions.”

Another key investor with whom Hazen keeps in contact is George Roberts, the San Francisco-based partner in the leveraged buyout firm Kohlberg, Kravis, Roberts & Co. who manages that firm’s 8% stake in First Interstate--the largest individual holding. Analysts say Roberts could swing the outcome by casting his vote with Wells.

Hazen and Roberts, longtime acquaintances, played golf together on the day before Thanksgiving, Hazen said. Did Hazen do any lobbying?

“I discuss business in business clothes,” Hazen said. “On the golf course, it’s strictly recreation.”

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Dueling Deals

In the takeover battle for First Interstate Bancorp, both Wells Fargo & Co. and First Bank System Inc. are offering to exchange shares of their stock for shares of First Interstate. Here is how the competing bids have fared in the market since First Bank announced its friendly merger proposal on Nov. 5. Lately, Wells Fargo’s hostile bid has gained ground. Dollar value of the bids:

Dec. 6, 1995

Wells Fargo bid: $145.67

First Bank bid: $136.50

Note: Wells raised its bid.

Sources: Bloomberg Business News, company reports.