The Wells Fargo-First Interstate Merger : REGULATORY HURDLES : Sale of Some Branches Is Called Key

The proposed merger of Wells Fargo and First Interstate should easily win the blessing of regulatory officials, provided Wells promises to sell some branches to preserve vigorous competition in several California markets, banking experts said Wednesday.

The Justice Department’s antitrust division, which is reviewing the Wells Fargo offer, has not yet said which branches would have to be sold.

San Diego and Sacramento are markets in which some divestiture is likely to be ordered, said Bert Ely, a banking consultant in Alexandria, Va. Ely and others agreed that once the Justice Department identifies the branches to be sold, the Federal Reserve Board is virtually certain to bless the merger of the two big bank holding companies.

“The Fed has not shown any interest in trying to block mergers of fairly sizable banks in the past,” said James Barth, professor of finance at Auburn University in Alabama. “There is no reason they should look with disfavor on this one.”

The Fed has been holding hearings in Los Angeles and San Francisco this week to consider the community impact of the proposed merger.

“The staff will take the comments received at the hearings and evaluate them, and the issue will come before the board,” a Fed spokesman said, declining to indicate when a decision might be made.

Relatively quick action is likely, however. The Fed held public hearings on the merger of Fleet Financial, based in Providence, R.I., with Shawmut National, based in Hartford, Conn., and Boston, on Aug. 26 and approved the merger less than three months later. In New York, approval of the merger of Chemical and Chase banks came on Jan. 5, less than two months after hearings.

Wells Fargo has an outstanding rating on providing for the credit needs of low-income and minority residents in the community, as required by the Community Reinvestment Act, Ely noted. Therefore, that issue, which poses serious obstacles to some mergers, should not be a factor here, he said.

“And there is no safety and soundness reason to turn it down,” Ely said. “Both are strong banks.”

California Atty. Gen. Dan Lungren is scrutinizing the deal’s antitrust implications at the state level. His review is expected to be completed in a few weeks.

Times staff writer Ronald J. Ostrow contributed to this report.