Vote is likely to muddy Nevada banking waters

Phil Levine

Friday, March 31, 2000 | 11:16 a.m.

Nevada profits

Zions Bancorporation on Thursday reported its Nevada subsidiary, Nevada State Bank, earned $18.5 million in 1999.

That's down 31.4 percent from Nevada State Bank's profit of $27 million in 1998.

The decline was caused by $12.6 million in pre-tax expenses for Nevada State Bank's acquisition of Pioneer Bancorporation.

Zions earned $194.1 million or $2.26 per share in 1999, up 35.4 percent from 1998.

Months of uncertainty and a decades-old rivalry are the backdrop for a shareholders' vote today that could reshape Nevada's banking industry.

With a high drama more associated with famous murder trials than bank mergers, all eyes in Nevada's banking sector are fixed on the shareholders' vote of Zions Bancorporation, parent of Nevada State Bank.

In casting their ballots, Zions' shareholders will decide the fate of the long-awaited merger between their company and Salt Lake City crosstown rival First Security Corp.

Industry experts are doubtful Zions' shareholders will embrace the merger offer in its current form.

"The merger agreement with First Security Corp. seems unlikely to win Zion shareholder approval at the March 31 vote," said Joe Morford, analyst with San Francisco-based Dain Rauscher Wessels.

"Due to the recent shortfall in First Security's earnings, a renegotiation of the initial (stock) exchange ratio seems warranted. We believe the merger is still worth trying to salvage ... although strained relationships do add greater integration risk."

Last week, in a surprisingly close vote, First Security shareholders gave their approval to the union.

Still, in voting their First Security shares, Zions' officials opposed one of the two proposals, thereby casting even greater doubt on the outcome of Friday's vote.

Zions'-owned Nevada State Bank recently acquired Reno-based Pioneer Citizens Bank and has 58 Nevada branches. First Security has 22 offices statewide.

Though they have disparate views of their merger, it's likely both banks would concur that it wasn't supposed to be like this.

Longtime observers of Nevada's banking industry agree: the rollercoaster of uncertainty surrounding this financial union is unprecedented.

"As far as I know, this is a unique event for Nevada (banking)," said state Financial Institutions Division Commissioner Scott Walshaw. "These types of mergers are usually very uneventful."

Despite a serene start, this merger has been anything but uneventful.

Last June, with great fanfare, the two Utah-based rivals trumpeted the benefits of their "merger of equals." The deal was supposed to close before New Year's Eve.

But in the first of several bizarre twists and turns, the Securities and Exchange Commission ruled in late December that Zions had inaccurately accounted for several acquisitions during the previous three years.

That ruling postponed the closing of the merger until the first quarter of 2000.

The next pivotal event occurred in early March, when First Security revealed its quarterly earnings would be off by as much as 27 percent from the previous quarter.

That revelation sent the value of both bank stocks on a downward spiral, triggering yet another wave of uncertainty.

First Security stock is currently trading in the $11.75 range, down from a 52-week high of $31. Zions' shares are now valued at about $38, off sharply from a 52-week high of $75.

Two weeks ago, that wave of uncertainty came crashing ashore when Zions' investment banker Goldman, Sachs & Co. advised the bank it "could no longer rely" on previous advice on the value of the merger.

A battle of press releases emerged in the wake of that announcement, with each side defending their actions and re-affirming their commitment to do what was required by the agreement.

For Nevadans, the stakes in today's vote are high: the balloting will shape the future of hundreds of employees, and the financial future of Las Vegas's third and fourth-largest banks.

A federal analysis found Zions-owned Nevada State Bank is the third largest bank in the Las Vegas market with local deposits of $1.1 billion, or 11.2 percent of the local market. First Security is No. 4 with $879 million in deposits, or 9.1 percent of the Las Vegas market.

The largest banks in the Las Vegas market are Bank of America and Wells Fargo, which just merged with Norwest.

Walshaw said the First Security-Zions union differs in many ways from previous mergers that reshaped Nevada's banking business.

"For example, in the case of the Wells Fargo and First Interstate merger, you had an unsolicited, hostile takeover bid," he said.

"This was intended as a friendly merger. There was no regulatory requirement (for the merger). The shareholders now have to decide if the offer as it stands is of proper value."

Today's vote will also help determine the future of 68 Idaho and Utah-based branches owned by both banks; in keeping with Department of Justice divestiture orders, those offices are slated to be sold to Honolulu-based BancWest Corp.

Closer to home, Nevada State and First Security previously revealed plans to close nine Las Vegas and Henderson branches due to the proposed merger.

It remains unclear as to whether those closures will take place if Zions' shareholders vote against the merger.

Even if Zions' shareholders vote down the deal, some observers hope the two banks can still reconcile their differences.

"We would think that a 10 percent to 20 percent reduction in the exchange ratio -- to a range of .35 to .40 shares (in the new company) for each First Security share -- might be a better deal than no deal at all," said Morford.

The merger agreement currently says Zions shareholders will receive one share of the new company for each Zions share they hold, while each First Security share will be converted to .442 of a share of the new company.

"If the merger fell apart, First Security could well attract another suitor. But in our view, it would not be easy for an outsider to come into the Utah market."

Morford did not speculate as to a possible buyer for First Security, although new federal legislation opens the doors for businesses other than banks to purchase the company.

Late last fall, Congress passed into law the Bank Modernization Act, thereby easing decades-old restrictions on partnering and ownership within the banking sector.

"The recent (Bank Modernization) Act opens a number of interesting possibilities," said Walshaw.

"There's a very real possibility that in the near future insurance firms, or investment banking companies, may look to purchase a bank."

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