Wells-First Interstate Merger Bid Gains State, U.S. Approval
Wells Fargo & Co.’s proposed $12.6-billion takeover of First Interstate Bancorp won approval from the U.S. Justice Department and the state of California on Wednesday after Wells agreed to sell 61 First Interstate branches with deposits of $2.5 billion.
The divestiture--much larger than Wells had expected, in terms of deposits--is meant to satisfy antitrust concerns that the new mega-bank’s dominance in certain California markets would harm consumers and businesses by limiting their banking choices.
“Wells’ acquisition of First Interstate presented a significant risk to competition . . . in numerous California markets,” said Assistant Atty. Gen. Anne K. Bingaman, head of the antitrust division. “These divestitures will preserve competition.”
The markets most affected are greater San Diego, with 14 branches to be sold; the Sacramento area, nine branches; and Bakersfield and Kern County, six branches. Only two Los Angeles County branches will go on the block, one each in Lancaster and Palmdale.
Analysts said there should be a ready market for the Wells branches. Indeed, half a dozen banks and savings and loans from inside and outside California are said to have already expressed interest.
The 61 branches are included among the 350 California branches Wells said it would close or sell when it consolidated with First Interstate. At least 7,000 California employees of both banks are expected to lose their jobs.
(By contrast, Bank of America shed 215 branches and $8.8 billion in deposits when it acquired Security Pacific Corp. in 1992.)
California Atty. Gen. Dan Lungren joined in the Justice Department inquiry into the merger and the final agreement to sell branches. One of Lungren’s chief concerns was that the deal not harm small and mid-size businesses’ access to loans and other banking services.
The clearance removes the last significant barrier before final Federal Reserve Board approval of the merger, the largest in U.S. banking history. The Fed usually follows Justice Department recommendations on antitrust matters.
Wells Fargo announced a March 28 date for stockholder votes on the deal, with separate meetings for Wells shareholders in San Francisco and First Interstate shareholders in Los Angeles. Wells said it expects the merger to close April 1. To satisfy the Justice Department, Wells must have sales agreements for the branches in hand by then.
Wells Fargo does not “expect the divestitures to have a material impact on the net income of the combined company,” Chief Financial Officer Rod Jacobs said in a statement Wednesday.
Wall Street reacted warmly to the news. Wells Fargo stock rose $2.25 to $249.25, and First Interstate jumped $2 to $165 in trading on the New York Stock Exchange.
First Interstate was a prized acquisition target in part because of its core of stable and cheap deposits--paying relatively low interest rates.
Wells Fargo had been estimating that it could clear antitrust hurdles with a divestiture of only about $1 billion in deposits. While the larger divestiture means Wells won’t get the long-term benefits of the cheap deposits, it should get a good price for the branches, analysts said. The divestiture also involves $1.3 billion worth of loans.
Wells is expected to try to sell the branches either in a single package or in several large bundles. That way, it can fold in the “dogs,” or undesirable locations, along with the attractive ones, said analyst E. Gareth Plank of Rodman & Renshaw brokerage in San Francisco.
Among the likely bidders, Plank said, are such California S&Ls; as H.F. Ahmanson & Co., parent of Home Savings of America; California Federal Bank; Great Western Bank; and even Glendale Federal Bank.
R. Jay Tejera, analyst for Dain Bosworth in Seattle, said U.S. Bancorp of Portland, Ore., and Seattle-based Washington Mutual Inc. might also bid on the branches.
Rosenblatt reported from Washington and Mulligan from Los Angeles.
