Fed to Hold Public Hearings on Bank Bids

Faced with dueling bidders for the biggest bank acquisition ever, the Federal Reserve Board took the unusual step Thursday of saying it will hold public hearings this month on competing proposals by Wells Fargo & Co. and First Bank System Inc. to acquire First Interstate Bancorp.

Simultaneous hearings will be held Jan. 22 in Los Angeles and San Francisco on Wells Fargo’s $10.7-billion hostile bid. Hearings on Jan. 23 will be devoted to First Bank System’s $9.8-billion friendly offer, which is favored by First Interstate management.

The Fed, which must approve the merger, said it will hold the hearings to consider “the convenience and needs of the communities to be served.”

Open hearings by the Fed are unusual, typically prompted by local complaints about the impact of a merger. In previous cases, groups have complained that a merger could close branches in low-income neighborhoods with already inadequate banking services, or that a financial institution had a poor record of lending to minorities.

*

For Los Angeles, the home city of First Interstate, a major community issue is jobs.

Los Angeles Mayor Richard Riordan has sided with Minneapolis-based First Bank System, which contends that fewer branches would be closed and fewer jobs eliminated under its deal because it would be a newcomer to California.

San Francisco-based Wells Fargo and First Interstate, on the other hand, have overlapping operations in 37 of 48 California markets. A takeover by Wells would mean the shutdown of hundreds of branches and thousands of layoffs, supporters of the First Bank System bid say.

Either way, there will be a major reduction in the work force at First Interstate. But the bank’s management, employees and local officials contend that the impact will be much less severe if First Bank becomes the new owner.

Wells Fargo has promised an ambitious program of expanded lending to small businesses, to minorities and to low-income areas if its bid wins. The bank hopes to avoid challenges to its bid under the Community Reinvestment Act, which says regulators should give special weight to a bank’s “record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods.”

Fed hearings on a merger deal “usually occur only when there has been community protest and the protest has been vociferous,” said Edward Furash, managing partner of Furash & Co., a bank consulting firm in Washington.

He predicted that the sessions later this month “will certainly be lively in getting an expression of what is good for the community.”

However, the public sessions in past merger controversies “tend to be more theater than substance,” he said. “They generally do not have as much impact as the written briefs and applications” by the contending parties.

*

The hearings, along with documents already filed, will give the Fed an extensive written record. After First Interstate shareholders decide on the winning bid, the Fed will make its final decision on the merger. It is expected to accept the stockholders’ decision, but it could change terms of the deal.

The hearings will be held each day at the Los Angeles branch of the Federal Reserve Bank and at the bank’s San Francisco headquarters. The San Francisco meeting will be run by Griffith Garwood, the Fed’s director of consumer and community affairs, and the Los Angeles session will be directed by Scott Alvarez, associate general counsel.