New merger shaking up Nevada bank industry

Phil Levine

Monday, April 10, 2000 | 11:34 a.m.

Wells Fargo & Co. said today it agreed to purchase First Security Corp. for about $3 billion in stock, less than two weeks after First Security's failed merger with rival Zions Bancorporation, owner of Nevada State Bank.

The San Francisco-based financial giant will pay 0.355 of its shares for each First Security share. That values First Security at $14.11 a share based on Wells Fargo's closing price Friday -- a 16 percent premium to First Security's closing price Friday.

Wells expects to take $375 million in charges because of the deal.

Bank officials predict the deal will close in the second half of this year, subject to regulatory approval.

Wells' Nevada President Laura Schulte said First Security's strength in serving the small and mid-sized business community will help the new Wells Fargo solidify its market position.

"First Security is very well-regarded as a business bank, and we see this addition as being very complementary to our current services," she said.

Schulte said it was too early to speculate as to the exact number of Nevada branches the bank may be required to close or divest because of the merger.

"We have a whole team of people who will examine this issue and help decide where -- and how many -- branches we may have to consolidate," she said.

"Our (Wells and First Security) combined total of Southern Nevada branches currently is 85. I can only say the final number (of branches) will be more than our current 70 offices but less than 85."

A First Security spokesman could not be reached for comment.

Prior to the deal, Wells was Nevada's second-largest bank, surpassed only by rival Bank of America; First Security was the state's fourth-largest financial institution, behind former merger partner -- and Zions' subsidiary -- Nevada State Bank.

With $218 billion in assets, Wells is the nation's sixth-largest financial institution; First Security has $23 billion in assets.

Just last fall, Wells completed the consolidation of its Nevada operations with Minneapolis-based Norwest Bancorp.; the bank currently has $4.3 billion in Nevada assets.

Although not surprised by the move, industry observers say the merger will prove beneficial for both banks.

"This is absolutely a good deal for Wells," said Joe Morford, analyst with Dain Rauscher Wessels of San Francisco. "Wells is acquiring a good franchise at a very reasonable price.

"They (Wells) purchased First Security at only 1.6 times its book price, which is a very good deal. And this deal also benefits First Security, as it ends the uncertainty for both employees and its customers."

Morford said Wells will likely divest about $1.2 billion in assets, "with a significant portion of that coming from the Nevada and New Mexico markets."

First Security Nevada customers -- who only 10 days ago were slated to become clients of the integrated First Security-Nevada State Bank partnership -- will instead now find themselves aboard Wells' burgeoning Western stagecoach.

Not surprisingly, Schulte said she expects those customers will warmly welcome the merger.

"This is a huge win for their (First Security) customers, as they will receive access to all of our Nevada branches and services," she said.

Similar to the bank's experience with its Norwest merger, Schulte said the expected divestiture may not result in any significant layoffs in Nevada.

"The merger does not necessarily mean there will be any layoffs," she said. "We may (after the merger) have less (combined) branches, but we will still have the same number of customers and we don't want to negatively impact our services.

"Much as we did with the Norwest merger, we may want to let natural turnover -- which is very high in this industry -- account for any staff reduction."

Morford said Wells should find little difficulty finding a buyer for any branches it's required to divest in Nevada.

"I think they may find a buyer from outside the market, in the same way they did with the banks they planned to divest in the proposed Zions merger," he said.

In First Security's aborted merger with Zions, the Department of Justice required the banks to divest 68 branches in Idaho and and Utah. Had the merger proceeded as planned, Honolulu-based BancWest Corp. was slated to purchase those assets.

In midday trading today, Wells Fargo stock was down about 50 cents to $39, while First Security stock was up by 9 percent -- or $1 -- to $13.50 per share.