A New Deal for First Interstate : THE IMPACT : The People, the Firms, the Outlook

Los Angeles loses a prestigious corporate headquarters but celebrates the prospect of retaining thousands of jobs. And First Interstate customers can still expect to bank at their favorite branch--and get more direct-mail pitches for credit cards.

These are among the likely effects if the proposed merger announced Monday between First Interstate Bancorp and First Bank System of Minneapolis ultimately takes place. Many view the deal as vastly preferable to a takeover of First Interstate by San Francisco-based Wells Fargo & Co.--a union that would have resulted in far more overlapping and short-term damage to the region’s economy.

“This is wonderful news for our city,” Los Angeles Mayor Richard J. Riordan said. “The merger will help maintain the spirit of competitiveness in California banking and preserve the culture of corporate responsibility that comes from having a major bank in Los Angeles.”

Seeking shelter from Wells Fargo’s hostile $10.2-billion bid, First Interstate accepted a bear hug from First Bank, a well-regarded regional institution that has experienced heady growth thanks to 23 acquisitions in recent years.

The company that would result from the union, with operations in 21 states, would keep the First Interstate name--bank executives said “First Bank” has proven to be too common--but the corporate headquarters would be in First Bank’s home city of Minneapolis. The board of directors would be evenly split, with representatives of each bank holding half the seats.

Many top- and mid-level First Interstate headquarters staff members face unknown futures, but prospects for tellers and other lower-level employees brightened considerably. Bank employees applauded the proposed deal.

“It’s going to be good for the California economy,” said Elizabeth Rodriguez, a First Interstate corporate banking officer. “I think everybody was pretty excited this morning.”

For Downtown Los Angeles real estate owners, a First Bank System deal would presumably be more welcome than a Wells Fargo takeover. First Interstate occupies nearly 1 million square feet of space Downtown, including the headquarters offices it leases in the 73-story First Interstate World Center. Real estate brokers had feared that a Wells Fargo-First Interstate combination would leave a huge amount of vacant space resulting from a shutting down of redundant operations.

Now, however, First Interstate Chairman and Chief Executive William E.B. Siart plans to remain in Los Angeles as president and chief operating officer of the merged entity, with responsibility for running the core businesses: retail, corporate and private banking; payment systems, and trust and investment management. And he and First Bank CEO John F. (Jack) Grundhofer vowed to maintain First Interstate’s “strong level of community support.”

With the banks’ executives stating that a combined payroll of 41,000 would be trimmed by 6,000 to help produce $500 million in savings a year, analysts predicted that upper- and mid-level managers at First Interstate would be the employees most affected. Most jobs eliminated would be administrative and data processing positions.

Big savings could be achieved by switching First Interstate’s management structure from one that is broken down along geographic lines at autonomous state banks to one structured along product lines, as at First Bank System.

“The implication seems to be that many of First Interstate’s highest paid senior executives will either leave the bank or be transferred to Minneapolis,” said Steven Schroll of Piper Jaffray Securities in Minneapolis. “On the other hand, to make the . . . transition work, First Interstate will have to keep a lot of its line managers [and lower-level people] in place, under Siart.”

That suggests that one likely effect of the deal would be that the First Interstate World Center, with its distinctive crown and the four gold-leaf logos, would suddenly develop some significant vacancies, as would First Interstate’s older Downtown high-rise (the scene of a disastrous 1988 fire).

Even so, the merger would appear to be far better for the Los Angeles economy than the previously proposed hostile purchase of First Interstate by Wells Fargo. First Interstate employs more than 5,000 people in Los Angeles County, and a merger with Wells Fargo promised Draconian job cuts.

Alluding to the Wells bid, James Marks, an analyst with the investment firm of Sutro & Co. in San Francisco, said, “It could have been worse.”

Should the First Bank deal proceed, customers can expect the First Interstate branch and automated teller machine networks to remain largely intact. But they could also anticipate some beefed-up marketing efforts to lure them to new products and services. First Bank is a leader in several areas--notably credit cards for individuals and companies--in which First Interstate has little or no expertise.

The State of California, for example, is a prime customer of First Bank’s corporate purchase-card business. The service provides businesses with credit card systems that let them manage their purchases and track them with computer readouts. Managers can devise budgets and distribute credit cards with preset spending limits to departments or individual managers.

First Bank is also considered a leader in the handling of credit card transactions for stores. Siart said he had considered outsourcing this function to First Bank even before the two companies had started talking about a merger.

Despite all the potential for savings and added revenue, at least one analyst remained skeptical of the merger frenzy in banking.

“To me, the best outcome would have been for First Interstate to remain independent, but I’m in a lonely boat,” Marks said. Eventually in banking “size is going to be a hindrance, not a help. The need to remake yourself constantly is going to become so important.”

With consolidation and cost-cutting the watchwords of the financial services industry, most bank employees realize that they need to be prepared to make a swift shift to another field.

“I think there’s a feeling of relief,” said Gerry Wagner, a vice president of First Interstate capital management. “[But] in this business . . . you sort of keep your resume up to date.”

Times staff writers James S. Granelli, Thomas S. Mulligan and Jesus Sanchez contributed to this report.

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More Bank Merger Coverage:

* First Interstate spurns Wells Fargo, gets offer from First Bank System. A1

* Wells Fargo under pressure. D6

* Minimal customer impact seen. D6

* Notable quotes about deal. D6

* First Interstate’s deal odyssey. D7

* Shareholders weigh options. D7

* Profile: Hard-working Siart. D7

* Firms’ strengths, weaknesses. D7