Nevada banks jockey for position

Phil Levine

Tuesday, March 7, 2000 | 10:58 a.m.

Banks say merger still on

Officials at First Security Corp. and Zions Bancorporation insist their merger is going to be completed, despite growing skepticism and distrust on Wall Street.

"We are not walking away from the deal," said Zions Chief Executive Harris Simmons, who was quoted today by the Salt Lake Tribune. "With what we know today, there's no reasonable chance of that."

First Security and Zions, both based in Salt Lake City, are significant banks in Nevada. Zions operates here as Nevada State Bank.

Concern about the merger heightened Friday when First Security warned that its first-quarter earnings would fall short of expectations.

"There's a good chance of the merger not going through," said James Bradshaw of D.A. Davidson in Portland, who was quoted by American Banker.

Friday's earnings announcement sent the stocks of both banks plunging. First Security fell again Monday, though Zions regained some ground.

Franklin Delano Roosevelt began his presidency the same year America's bankers first rebelled against a new law restricting the activities of commercial banks.

Two-thirds of a century later, the financial industry finally managed to repeal the Glass-Steagall Act of 1933.

Their mission accomplished, the looming question confronting banks remains: now what?

Bankers must now discern how best to use their new-found legal right to enter into previously unavailable partnerships and product markets. As the walls separating banks, security firms and insurance companies crumble, bank officials and industry experts ponder the road ahead.

"Banks in Nevada -- and nationwide -- welcomed the Modernization Act as a way to level the playing field for everyone," said Ted Wehking, executive vice-president of the Nevada Bankers' Association. "I think the larger banks will be the first to act by offering new products, but smaller banks will likely react (to the act's passing) as well.

"I expect you could see mergers and acquisition activity accelerate during the course of this year."

Still, industry experts believe the initial euphoria that followed passage of last year's Bank Modernization Act is giving way to a more complex reality.

"Don't expect a lot of rapid consolidation between industries," said Joe Morford, bank analyst with San Francisco-based Dain Rauscher Wessels. "Banks are going to closely examine the economics of each purchase, and will have to justify each investment."

Steve Wharton agrees.

"In the near-term, very few of the major banks are really in a position to aggressively acquire new companies," said Wharton, an industry analyst with Loomis, Sayles & Co. in Boston. "Most of the major Nevada banks -- particularly Wells Fargo and Bank of America -- are focussed internally following major mergers."

And though they all compete for the same consumer dollar, different banks will likely proceed with varying speed and direction into new partnerships and acquisitions.

"In the case of First Security Bank, for example, the issue of revenue diversification is likely to play an increasing role in their plans," said Standard & Poors bank analyst Vincent Piazza. "Loans by themselves are part of the old bank methodology, so they (First Security) will likely look to find revenue that's not interest-dependent."

Piazza cited the insurance sector as one area that could provide First Security with needed revenue diversity.

Morford said the Salt Lake City-based bank -- currently preparing for a merger with Salt Lake City rival Zions Bancorporation -- has a "big merger on its plate" that will demand attention.

As well, he noted the new First Security Bank will also inherit San Francisco-based Van Kasper & Associates as a securities investment arm.

Bank of America might appear to be a likely candidate for rapid expansion into new product areas in wake of the new law. However, industry watchers say the Charlotte, N.C.-based financial giant is still smarting from its mega-merger with the former NationsBank and is looking to consolidate to further cost savings.

"They (B of A) are already active in the investment banking area, and will likely look to build on that platform," said Morford.

Adds Wharton: "Senior B of A management recently made it clear they weren't interested in acquiring non-banking financial services firms in the near-term. They might, however, have some interest in acquiring a life insurance firm if the right opportunity arose."

B of A Nevada President George Smith says his bank is well-positioned to take full advantage of the opportunities presented by the Modernization Act.

"The size of our franchise allows us to look at doing a little of everything," he said. "Although I don't necessarily see us buying an insurance company, it does open the door for new partnerships. Our clients will vote with their checkbooks as to which options we actively pursue in the future."

In fact, mergermania in the 1990s means several of Nevada's largest banks already provide an array of different financial services products.

"In the case of Citigroup, their acquisition of (insurance giant) Travelers Group allows them to be the first (bank) to utilize client information to better understand their customer base, and cross-sell products," said Wharton. "This year will be really telling on whether they can use that information successfully."

Then there's the case of U.S. Bancorp.

In 1998, the Minneapolis-based company acquired Piper Jaffray Companies Inc., thereby achieving a strong foothold in the lucrative securities industry. At the time of the purchase, Piper managed $75 billion in assets and was the nation's 11th-largest retail brokerage.

Last year, U.S. Bank acquired San Diego-based Bank of Commerce, a leading Small Business Administration lender; at year's end -- after passage of the Modernization Act -- the bank launched a new online insurance product created in partnership with Great West Life & Annuity Insurance Co.

Ken Ladd, president of U.S. Bank's Nevada operations, said his bank is "still looking at how to utilize the new-found powers" afforded under the new law.

"No matter what products we choose to offer, they will have to meet our three criteria of simple solutions, one-stop shopping and easy access for the customer," he said. "Las Vegas is a 24-hour town, and our customers have high expectations for easy (banking) access."

Industry watchers agree that for San Francisco-based Wells Fargo, the new era of banking may -- at least initially -- translate into life insurance.

"I think Wells might consider looking to acquire a life insurance company if the economics made sense," said Morford. "They're already very active in that area, with one of the largest bank-owned insurance companies nationwide."

Wharton concurs.

"They would focus, for economic reasons, on life rather than property insurance," he said. "And there are plenty of strong (insurance) companies they could consider (acquiring). The more likely candidates include American General, Lincoln National and perhaps John Hancock when they go public."

A Wells' spokeswoman declined to comment on the bank's future expansion plans, except to say the bank would "pursue good opportunities as they arose."

Still, don't expect all banks to fly headfirst into the insurance business.

In what may be a portend of things to come in Nevada, executives from two of New England's largest banks -- FleetBoston Financial Corp. and Citizens Financial Group Inc. -- recently said they plan to forsake the insurance sector and concentrate solely on banking.

And despite general perceptions, not all banks gained ground with the passage of the new law.

Libby Hutchinson, spokeswoman for America's largest thrift bank, Seattle-based Washington Mutual, said the new law actually closed a previously open door for the nation's thrifts.

"Although we were very strong supporters of the bill, we already had few restrictions on us as we're governed by the Thrift Charter, which is very broad," she said. "However, this new law actually removed the option for our company to be purchased by a non-financial services firm.

"But we already provide insurance and securities services to our customers, so this bill won't impact the products we can offer."

Over the course of this year, Washington Mutual plans to open 20 Las Vegas branches.

Adding to the already complex scenario is the burgeoning area of Internet banking and future online partnerships.

Although several large banks are actively expanding their online operations, Wells Fargo is viewed by many as the industry's cyber-leader.

"I think that Wells' online operations will have a far bigger impact on their (product) distribution than will any new acquisition," said Morford. "They're definitely a leader in this area."

U.S. Bank is also looking to expand its online presence.

"We recently spent about $50 million on increasing Internet access," said Ladd. "We see it as part of our commitment to provide Nevada customers access to banking 24 hours a day, seven days a week."

Despite the hoopla, for Nevada's community banks the Bank Modernization Act means little more than business as usual.

"We don't really have the resources to look at introducing a lot of new products, although we could now offer additional services if the demand's there," said John Guedry, senior vice president at Community Bank of Nevada.

"We fill a niche -- and always will -- for customers who don't want (banking) quicker and faster, but simply better."

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