ARCHIVED  October 1, 1998

Wells Fargo, Norwest deal deemed ‘merger of equals’

The June agreement that will merge Wells Fargo & Co. and Norwest Corp. will spawn the Western Hemisphere’s most extensive and diversified financial-services network.

The press release billed the deal as a “merger of equals.” The move combines Minneapolis-based Norwest, with 765,783,000 shares of stock outstanding, priced at about $36 per share, and San Francisco-based Wells Fargo, with 85,137,000 shares outstanding, priced at $354 per share. Both entities compare favorably in market capitalization – the number of shares outstanding multiplied by the stock price – with Norwest at $27.6 billion and Wells Fargo at $30.1 billion.

Norwest’s Colorado spokeswoman, Cristie Drumm, explained that Norwest, the “slightly larger” bank in terms of total assets, is buying Wells Fargo stock.

Norwest does have about $1 billion more in assets ($96.1 billion against Wells Fargo’s $94.8 billion), slightly higher income ($1.351 billion against Wells Fargo’s $1.155 in 1997) and 26,000 more employees. But Wells Fargo outweighs Norwest in deposits ($72.3 billion vs. Norwest’s $57.8 billion), customers (10 million vs. a close 9.9 million for Norwest), credit card loans ($4.4 billion to $1.6 million) and automatic teller machines (4,400 to Norwest’s 1,752).

In any event, the combined company will be called Wells Fargo & Co. It will boast $191 billion in assets and more than 90,000 employees, at least initially. Nationally, only a few of the 2,130 employees working in San Francisco and Minneapolis are likely to find themselves redundant, Drumm said.

Colorado, Wyoming and Nevada are states in which Norwest and Wells Fargo both maintain operations, but no jobs will be lost in Colorado, said Wells Fargo Colorado regional vice president Paul Nussbaum.

“We’ll retain all the people we can,” Drumm added. “Some will be reassigned.”

The new headquarters will be in San Francisco. The new CEO will be Norwest’s Dick Kovacevich.

What the deal will mean for the new giant’s 20 million customers is also still a matter of speculation and spin, of course, until the deal is approved by stockholders. That vote is scheduled for Oct. 20. The transaction just got the regulatory nod last month.

Wells Fargo’s presence in Colorado, Nussbaum said, has been limited to Internet banking, 11 Safeway store outlets and corporate offices. Wells Fargo’s strategy has been to fill gaps left by Norwest.

“The rationale behind this ‘merger of equals’ is to bring together very complementary corporate cultures with no real clash,” Nussbaum said. “When you talk about community banking vs. Internet banking and in-store banking, there’s no possible conflict.”

Norwest brings to the table a strong reputation for community banking, which translates roughly as local involvement and decision-making, and different standards for different economic conditions.

“For example, real estate lending in Aspen and real estate lending in Sterling is dramatically different,´ said John Nelson, CEO of Norwest’s Colorado regional operations. “If I were to make real estate lending decisions for both places, they’d probably both be wrong.”

Norwest’s strategy has long been to put “smart, experienced” people at the head of its banks, “who, through their participation in those communities have the best idea of what the real needs are and how to meet them,” Nelson said.

The local involvement and control strategy has made Norwest the No. 1 market shareholder in 75 percent of the communities it serves, Nelson said. Wells Fargo will add regional presidents for more local decision-making in areas it already serves.

Norwest has pioneered the financial “store” concept, that is, offering a variety of financial products such as mortgages, insurance, credit cards, mutual funds and so on. Norwest has 3,847 stores nationally to Wells Fargo’s 1,930.

Nelson, too, insists that the union of Norwest and Wells Fargo will not change for Norwest customers what those customers already value about their bank. What the change will mean, he said, is additional benefits to those customers such as more capital, more convenience in more stores and twice as many mutual-fund products.

The deal, which will cost $950 million and save $650 million in three years, will create a banking titan that will rank first in number of financial stores in the Western Hemisphere, first in mortgage originations and servicing, first in Internet banking and first in agricultural lending in the United States.

If approved, a proposed merger between Citicorp and Travelers Insurance would set case precedent.

It would allow a bank to be affiliated with the second-largest securities firm in the United States – something that traditionally has been a big no-no.

“If the second-largest securities firm in the country can affiliate with a bank, Glass-Steal has no meaning at all,´ said Kenneth Gentler, spokesman for the Independent Bankers Association of America.

Glass-Steal, enacted 65 years ago, put strict regulatory walls around banks’ various types of financial-service companies. A Citicorp-Travelers union would knock them down.

“That’s going to be a real test case, if you will,´ said Ken Belie, president and chief executive officer of the Boulder office of Norwest Bank Colorado.

“If, in fact, that merger gets approved – which in all indications it will ” they’ll end up amending or revoking or doing something to the Glass-Steal Act,” he said.

But it is not as though its demise would pull out all the stops put in place after the Great Depression, said David Harness, vice president of Norwest Investment Services Inc. in Boulder. For example, there is still the Federal Deposit Insurance Corp.

And more.

“It’s still a very different world,” Harness said. “The landscape is a lot different today than it was in 1929.”

And it is just a fact of life that there is more money now than ever in mutual funds. The mutual fund has become the investment vehicle of choice, Harness said, and baby boomers are a risk-taking generation ” the Depression is newsreel footage to them.

“We’re not a nation of savers,” he said. “We’re a nation of investors.”

With investment services as subsidiaries, banks can compete in a boomer nation.

“That’s where the market’s going,” Harness said. “That’s where the demand is.”

Whether consumers want banks with more offerings or no, IBAA officials announced in June that the association “strongly opposes” the pending Citicorp-Travelers merger.

The IAA represents 5,500 institutions at more than 16,000 locations nationwide; members hold nearly $339 billion in insured deposits, $492 billion in assets and more than $240 billion in loans for consumers, small businesses and farms.

The association had made its stance clear on the Citicorp-Travelers matter at a public hearing in June at the Federal Reserve Bank of New York and in 40 pages of written comments filed with the Federal Reserve. The association called the transaction a “flagrant violation” of the Bank Holding Company Act because it would allow the combining of banking and insurance underwriting.

“The proposed merger carries serious adverse consequences for the nation’s consumers, community banks and for the entire financial-services industry,´ said Karen Thomas, director of regulatory affairs and senior regulatory counsel for the association.

“In fact, the merger is the largest in American business history and portends awesome restructuring of the financial-services industry,” Thomas said.

Travelers and Citicorp both have announced that there will be no need to spin off any business that is in violation of the law. But Thomas said Citicorp may not use what is called the “divestiture provision” of the Bank Holding Company Act to “warehouse” its insurance activities for up to five years while hoping for a change in the law. The divestiture provision, she said, is not available to a company with no real intent to divest.

Banks do not necessarily operate as a united front on all issues.

“I don’t know if we would have a position on it at all,” Norwest’s Belie said of the proposed Citicorp-Travelers deal. “I think it’s happening all around us.”

The June agreement that will merge Wells Fargo & Co. and Norwest Corp. will spawn the Western Hemisphere’s most extensive and diversified financial-services network.

The press release billed the deal as a “merger of equals.” The move combines Minneapolis-based Norwest, with 765,783,000 shares of stock outstanding, priced at about $36 per share, and San Francisco-based Wells Fargo, with 85,137,000 shares outstanding, priced at $354 per share. Both entities compare favorably in market capitalization – the number of shares outstanding multiplied by the stock price – with Norwest at $27.6 billion and Wells Fargo at $30.1 billion.

Norwest’s Colorado spokeswoman, Cristie Drumm, explained…

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