Wells Fargo & Co. has agreed to divest more than twice as much in deposits as originally planned for its acquisition of First Interstate Bancorp.
The U.S. Justice Department, in approving the deal on Wednesday, said Wells would sell 61 branches with $2.54 billion in deposits - the third- largest divestiture in banking history.
Highlighting an increasingly common theme in antitrust reviews, the government focused on small-business lending. The conclusion: Competition in that market would be hurt without divestitures larger than the $1 billion initially planned.
Wall Street analysts welcomed the Justice Department's approval of the giant merger, which was announced on Jan. 24. And they said they were unfazed by the plans for stepped up deposit sales.
"This is a small price to pay for the dramatic benefits of consolidation, even if it is more than expected," said Brent B. Erensel, senior bank analyst at UBS Securities.
Wells, for its part, said it is already talking with potential buyers of the branches and deposits.
"We don't expect the divestitures to have a material impact on the net income of the combined company," said Rod Jacobs, Wells' chief financial officer and vice chairman.
The planned divestitures would be eclipsed only by $8.5 billion in deposit sales following BankAmerica Corp.'s acquisition of Security Pacific Corp. in 1992, and the $3 billion of sales following Fleet Financial Group's 1995 acquisition of Shawmut National Corp.
In the Justice Department's latest review, Wells Fargo argued that the merger wouldn't affect small-business lending, because the two banks weren't competing for this business. This analysis served as the backbone of Well Fargo's initial prediction that it would have to divest only $1 billion in deposits.
"We thought we had a very strong argument," according to one source close to the deal.
The merger parties told the government that Wells was active in small- business lending but First Interstate was not. But the Justice Department didn't buy this contention.
Tony Nanni, the chief of litigation in the department's antitrust section, said Justice discovered that First Interstate, though not closing many small-business loans, was actively vying for them.
This competition, which would disappear with a merger, drove down prices, he said.
The Justice Department sought to preserve the competition by ordering Wells to divest branches that could best serve small-business needs, Mr. Nanni said. "We wanted to end up with a quality network that we believe would be a quality purchase for a potential buyer," he said.
The planned divestitures include 18 branches in Sacramento with $813 million in deposits, 26 branches in Southern California with $1.05 billion in deposits, and 12 branches in the central valley with $451.5 million in deposits.
Overall, Wells Fargo plans to close 345 branches when it mergers the two banks together.
Banking lawyers said Wells Fargo had little choice but to agree to the divestitures. Charles A. James, a partner at the Washington law firm of Jones, Day, Reavis & Pogue, said a Justice Department antitrust complaint automatically blocks a pending merger.
"These deals can't survive that," he said. "The automatic stay is sort of the nuclear weapon of antitrust."
Also on Wednesday, the Securities and Exchange Commission approved the joint proxy statement that Wells Fargo and First Interstate plan to mail to their shareholders, who will vote on the merger at separate meetings in San Francisco and Los Angeles on March 28.
