California Rivals Weigh Impact of the Big Merger

LOS ANGELES - The merger of BankAmerica Corp. and Security Pacific Corp. will clearly heighten competition in the California market, but their rivals do not foresee dramatic changes overnight.

Virtually no one expects the merged company to try to increase its already dominant market share by increasing interest rates paid on deposits or slashing loan rates.

Instead, experts think the new BankAmerica will use the powerful economies of the in-market merger and its vast branch network to gradually increase service quality and capitalize on advertising advantages. It is on these fronts, observers say, that the battle for market share will be fought.

In the longer run, the mega-merger will speed the exit of weaker competitors and may well prompt additional in-market mergers, observers acknowledge.

Those seen as most likely to be affected are three giant institutions struggling to put their own houses in order: First Interstate Bancorp, CalFed Inc., and Glenfed Inc.

But despite all the hoopla surrounding the merger, rivals point out that they are already used to battling with BankAmerica and Security Pacific. "These banks have always been strong competitors," says Richard H. Deihl, chairman and chief executive of H.F. Ahmanson & Co., Los Angeles.

Many Demands

Of course, the new BankAmerica, which will have some $190 billion in assets, will not be training all its resources on California. While the San Francisco-based company figures to be more profitable, some of the benefits will be used to fuel its nationwide expansion plans. Shareholders, too, will be demanding a higher rate of return.

And by joining with Los Angeles-based Security Pacific, BankAmerica will already have a killer market position in the Golden State. The company divides the state into 56 markets and said that, after the merger, it would have the largest share of deposits in 42 markets, the second-largest in 10 markets, and third-largest in the four remaining markets.

The company's California bank, Bank of America, will have a 34% share of bank and thrift deposits in populous Los Angeles County, 23% in San Francisco County and a 17% share in growing Orange County, according to statistics compiled by Smith Banking Consultants, Inc., Glendale, Calif.

Statewide, Bank of America will have $93.7 billion in deposits or 19% market share, more than twice that of the next competitor, San Francisco-based Wells Fargo Bank, with $42 billion or 8.7%, and six times that of Los Angeles rival First Interstate.

No Point to Price Cuts

"With that kind of market share, why would they cut rates?" asks J. Richard Fredericks, a partner at Montgomery Securities, San Francisco.

"We don't expect any difference in prices for business or retail customers," according to Richard Hartnack, vice chairman of San Francisco's Union Bank.

Price cutting is not necessarily the most effective strategy in financial services anyway. "Hell, we've paid more [on certificates of deposit] than Bank of America for years, and we didn't steal all their customers," says Mr. Deihl.

"There will be intense competition but it won't be on price," agrees Edward E. Furash, Furash & Co., Washington, D. C.-based bank consultants. He said BankAmerica would compete with more and better products and service.

"The pressure comes in the affordability of new programs, products, and calling efforts," he adds. "It is their ability to buy technology and launch big marketing campaigns that puts others at a competitive disadvantage."

The bank might sometimes run sales and specials to promote a product or gain market share in a specific region, he predicts.

BankAmerica will also enjoy more bang for its marketing buck, says Mr. Fredericks, in the same way Budweiser does compared with a smaller beer label such as Rolling Rock.

And BankAmerica will be "awesomely convenient," he says. Convenience is the most important factor when consumers and many businesses choose a bank.

Not all banks and thrifts will be hurt by the merger. Many bankers and experts says community and specialized banks may even benefit.

Benefit Is Seen

"Frankly, the merger will help us," says Bram Goldsmith, chairman and chief executive of City National Corp., Beverly Hills, which has long catered to high-net-worth and middle-market clients. "There will be customers that will switch because they are not getting the kind of personalized service that we give. We don't see the merger as a negative."

But the heat will be most intense among California financial institutions already in a relatively weak position. "Anyone who hasn't got their cost structure in hand and a deep franchise in a tight geographic market will be feeling the pressure," says Mr. Furash.

"It will be difficult to spend money now to play catch up," adds Montgomery's Mr. Fredericks.

First Interstate's Role

First Interstate is the bank most often named as being hit hardest. It all its states, First Interstate has been working to pare down problem loans and expenses. And it competes in the broadest, most direct way with the new BankAmerica. The talk that First Interstate bank may merge has heightened as a result of the Bank of America-Security Pacific merger.

The biggest losers will probably be among the thrifts, said David Smith of Smith Banking Consultants. "Hurt most will be the marginally capitalized institutions, and for the thrifts, that is a fairly long list. They can't afford to grow, they will lose some market share," he said.

In addition to Los Angeles-based CalFed and Glenfed, based in Glendale, others struggling to build capital are HomeFed Corp., San Diego; Coast Savings Financial Corp., Los Angeles, and UnionFed Financial Corp., Brea.

The merger could revive discussions on in-market mergers among California's giant thrifts. In 1989, CalFed and Glenfed discussed a merger, and the added pressure from the new banking competitor could help revive those and other talks, anslysts said. CalFed declined to comment and Glenfed executives could not be reached.

Observers also suggested that the BankAmerica combine could prompt mergers among the big healthy thrifts such as Ahmanson and Great Western Financial Corp., Beverly Hills or Golden West Financial Corp., Oakland.

"It makes sense, but not necessarily among the top three players," says Mr. Deihl, "The benefits of consolidation are just as good with smaller players." A Great Western executive said his firm is not ruling out any possibilities on the merger front.

But bankers and analysts alike stress that while the BofA merger accelerates forces already unleased, market changes will be slow in coming.

Any changes could be slowed further if BankAmerica has difficulties working off the problem loans of the combined institutions.

"Through 1992, it will be a pretty low profile" for the new BankAmerica, says Mr. Fredericks, adding, "market share shifts take a long, long time to move." And while nobody is dismissing the new banking giant, Mr. Furash concludes: "Those that say it will be a donnybrook are wrong."

PHOTO : BankAmerica's Dominant Position

PHOTO : How the Megamerger Will Increase BankAmerica's Market Share in California

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