Wells Fargo-First Interstate Deal Is Done

Wells Fargo & Co. completed its $13.3-billion acquisition of First Interstate Bancorp on Monday and quickly dropped the other shoe, notifying 1,750 employees that they are losing their jobs.

Those jobs are the first wave in a total of 7,200 jobs to be eliminated by year-end, as San Francisco-based Wells pares staffing by 16% from a combined premerger total of 45,800 across 13 Western states. Most workers who received pink slips Monday will depart in 30 to 90 days.

For First Interstate customers, the transition will not be so abrupt. Wells plans to start converting accounts from First Interstate to Wells in the late summer. It also plans to close about 350 of the combined bank’s California branches by the end of September.

The merger is the biggest in U.S. banking history, as measured by the value of Wells Fargo stock that First Interstate shareholders are receiving--$13.3 billion at the close of the stock market last Friday, the last trading day before the deal closed. However, Wells Fargo put the official purchase price at $11 billion, the value on Jan. 19, the last trading day before the two companies struck their merger agreement.

The job cuts will result in a restructuring charge in the neighborhood of $700 million, including severance payments that could approach $400 million, more than $100 million higher than Wells initially anticipated, according to Wells President William F. Zuendt.

“I don’t know of any severance that’s more lucrative anywhere” in American industry, Zuendt said in an interview Monday. He said the arrangements are unusual because they can be prompted not just by a layoff but by virtually any change in an employee’s job.

With executives in line for two and three times their annual pay and bonus if they leave the bank, “a lot of people we wanted to stay basically said they couldn’t afford to,” Zuendt added.

Of the 1,750 cuts announced Monday, 811 are in California, a Wells spokeswoman said. The California layoffs are mainly in downtown Los Angeles, in First Interstate’s two skyscrapers.

Those affected range from executives--190 of those departing rank as senior vice president or higher--to clerical workers. Since the branch closings have not yet begun, most of those retail workers have at least a temporary reprieve.

Although no official decision has yet been made, Zuendt acknowledged that First Interstate’s downtown operations center at 7th Street and Garland Avenue probably will be closed. About 100 of the 2,100 people who work there were notified that their jobs in mortgage servicing are being switched to a Wells office in San Diego, Zuendt said.

Because of a hiring freeze that has been in place at Wells since it unveiled its hostile bid for First Interstate last October, there are about 1,000 open positions in the company for which laid-off employees may apply.

Wells Fargo, bowing to Southern California political pressure, will operate what it calls “dual headquarters.” The corporate headquarters will remain in San Francisco, but Wells will run its commercial banking operations out of Los Angeles. The Los Angeles operation is headed by Paul M. Watson, a newly named vice chairman of Wells.

The Wells-First Interstate merger is one of three huge bank mergers that took effect Monday. Another was the marriage of Chemical Banking Corp. and Chase Manhattan Corp., both of New York, creating the nation’s largest bank, with assets of $285 billion.

However, both U.S. deals are dwarfed by the merger of Japan’s Bank of Tokyo and Mitsubishi Bank, a combination that forms the world’s largest banking company, with assets of $679 billion. In California, that deal combines Mitsubishi’s Bank of California with Bank of Tokyo’s Union Bank. The new entity will be called Union Bank of California.