Bowing to pressure from state and federal antitrust authorities, First Bank System Inc. has agreed to restructure its merger agreement with Minneapolis competitor Bank Shares Inc.

To assuage concerns that the deal would eliminate too much competition, First Bank said last week it would not acquire Marquette Bank Rochester, the smaller of Bank Shares' two subsidiaries, with $191 million in assets.

The change reduced First Bank's purchase price by about $30 million, to $200 million.

Credit Crunch Feared

But the companies' lead banks in Minneapolis -- the second- and third-largest in that market -- would proceed with a merger that raised howls of protest from some consumer and independent-bank interest groups.

The opponents have warned of a contraction in credit availability if Minneapolis banking business becomes increasingly dominated by First Bank and its archrival, Norwest Bank Minnesota.

The addition of Bank Shares' Marquette Bank Minneapolis would increase the assets of First Bank's lead bank by about 20%, or $2.1 billion.

With the Minnesota attorney general and U.S. Department of Justice in support of the renegotiated merger plan, the way seems clear for the Federal Reserve Board to vote its approval, perhaps within days.

The deal would be the latest in a series of major mergers that had to be modified in the face of an increasing activist antitrust division of the Justice Department.

BankAmerica Forced to Divest

Before completing its acquisition of Security Pacific Corp. this year, BankAmerica Corp. had to satisfy officials in several states as well as the nation's capital that it would divest enough business to maintain a desired level of competition. BankAmerica put $8.5 billion of assets in five states on the selling block.

Similar issues were addressed in the Society Corp.-Ameritrust Corp. merger in Ohio, First Hawaiian Inc.'s acquisition of First Interstate of Hawaii, and other deals in relatively concentrated markets.

The Federal Reserve Board's competitive analyses in recent years have been more lenient than the Justice Department's though some Fed governors have said they are wary of overconcentration in certain markets, including Minneapolis.

In the First Bank-Bank Shares case, Minnesota Attorney General Hubert H. Humphrey 3d took credit for forcing the exclusion of the Rochester bank.

Claiming his office's role was a prime example of state antitrust activism, Mr. Humphrey went so far as to criticize federal models that calculate market concentration.

Susan Gretz, and assistant attorney general, said the states will increasingly be a force to reckon with in the in-market mergers that many bankers are eager to conclude because of their cost-reducing opportunities.

H. Rodgin Cohen, a lawyer with Sullivan & Cromwell in New York and First Bank's counsel on the Bank Shares acquisition, said it is not clear that state officials have the legal standing to oppose mergers of federal chartered banks.

He suggested that because of the potential costs and delays of a court challenge, most banks are humoring state officials rather than fighting them.

Protests Started Early

The Minnesota deal's announcement in January sparked numerous protests and political action. The Rochester Post Bulletin editorialized on May 21 that the merger held no benefits for its community. The newspaper got its wish last week with the renegotiation.

Instead of going to First Bank, shares of Marquette Rochester will be distributed to Carl R. Pohlad and members of his family, who control Bank Shares Inc. Mr. Pohlad also owns the Minnesota Twins baseball team, among other interests.

Community banking advocate Norbert McCrady slammed the modified deal as "nothing but a small sacrifice to make it appear that they were responding to Justice."

Mr. McCrady, a consultant based in Eden Prairie, Minn., formerly headed the state independent bankers' association. He was in the forefront of critics of the merger.

Much of the community opposition was fueled by First Bank chief executive John Grundhofer's reputation for cutting costs and jobs.

One year after he took the helm in January 1990, First Bank slashed 1,700 from its payroll.

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