Coalition’s suit seeks to block First Security-Zions merger

Phil Levine

Monday, Dec. 20, 1999 | 11:09 a.m.

An alliance of Western construction contractors and small business owners is fighting in court to block the merger of First Security Corp. and Zions Bancorporation.

In a quixotic David and Goliath battle -- pitting two multi-billion dollar banks against six individual customers -- Provo, Utah, attorney George M. Allen filed suit in U.S. District Court for Utah, alleging the merger would violate antitrust laws.

Representing six plaintiffs in Utah and three other Western states, Allen's suit alleges the proposed merger will severely limit competition in markets where Salt Lake City-based First Security and Salt Lake City-based Zions currently compete.

In June, the two banks announced plans to merge operations and keep the First Security name. That merger triggered a U.S. Justice Department review of both banks' operations to ensure the union didn't breach federal competition laws.

In Nevada, Zions-owned Nevada State Bank currently operates 45 branches, while First Security and recently-acquired-by-Zions Pioneer Citizens Bank have 22 and 13 offices, respectively.

The Justice Department ordered Zions and First Security to divest 68 branches in Utah and Idaho with total assets of $2.1 billion; no divestiture was required in Nevada.

However, First Security plans to close 11 Nevada branches to prevent overlap. The banks plan to complete their merger by Dec. 31.

Allen said several individuals and businesses in Nevada are part of the group supporting the lawsuit, but declined to identify them, citing attorney-client privilege.

"All I can tell you is there's more than two and less than 100 (Nevadans) involved," he said. "We've decided to fight this battle primarily in Utah. It's really a question of best using the limited resources we have, and fighting the case on the strongest grounds available.

"Given the limited (bank) competition in Utah -- especially rural Utah -- we believe that's where the battle should be fought."

Allen said he plans to file a motion in a Denver court asking for a review of the Federal Reserve's decision to allow the merger.

Earlier this month, both the Justice Department and the Fed approved the merger.

Jeff Shields, the attorney representing Zions and First Security in the litigation, declined to comment on the case.

The divestiture order did little to appease Allen and the plaintiffs he represents.

"We anticipated the DOJ and Fed decision, as their recent tendency has been to approve bank mergers," said Allen. "However, unlike Las Vegas and Salt Lake City, the Intermountain west region doesn't have very much competition, especially in rural areas.

"The physical distance between populated centers in this area is one of the things I'm sure the (Washington) D.C. agencies just don't get."

A complaint filed before Utah Federal Judge Dee Benson listed several reasons why the merger should be blocked:

For their part, federal regulators declined to comment on the lawsuit. However, they did acknowledge that competition questions arising from the merger could occur even in cosmopolitan Las Vegas.

Although officials approved the union, in its official review of the proposed merger the Fed states that "consummation of the proposal (merger) would exceed DOJ guidelines in the Las Vegas banking market."

The Fed analysis finds First Security currently controls 9.1 percent of Las Vegas' banking market, Zions (through Nevada State Bank) has 11.2 percent, thereby giving the combined new bank more than a 20 percent market share.

Still, the Fed analysis also points out several "mitigating factors" in Las Vegas justifying the DOJ decision not to order local divestiture by the banks.

Mitigating factors in Las Vegas include:

Market watchers don't expect the suit to block the merger.

"The DOJ and Fed have made their rulings on this merger, so I don't expect this (lawsuit) would affect the merger's completion," said Joe Morford, industry analyst with San Francisco-based Dain Rauscher Wessels. "The divestiture order was for slightly higher assets than expected -- $2.1 billion versus $1.8 billion -- but overall the merger looks good."

Morford also discounted Allen's concerns about a potential lack of rural banks and diminished competition.

"I would expect that most, if not all, of the divested branches will go to a single buyer," he said. "Two of the banks I've heard mentioned as potential buyers are U.S. Bancorp and Wells Fargo.

"It's also possible the (divested) banks may be purchased by a combination of a large bank and local community banks."