System Inc. said that rival Wells Fargo & Co. "overstated cost savings and understated revenue losses" in its hostile bid for First Interstate Bancorp. In a Friday morning conference call with analysts and investors, First Bank chairman and chief executive John F. Grundhofer and chief financial officer Richard A. Zona launched their first volleys against a sweetened offer made by Wells on Nov. 13. First Bank also took its case to Californians, with full-page advertisements in local newspapers on Friday. The ads warned that a merger between First Interstate and Wells Fargo "could be a disaster for California," since more than 10,000 Californians could lose their jobs. Job losses in a First Bank merger would amount to only 6,000, the executives claimed, and these job cuts would be spread across the combined company's 21-state territory. Although the moves represented an escalation of First Bank's rhetoric, some say the Minneapolis bank has been unusually aggressive all along. Last week, Wells supporters claimed that First Bank has stepped up its share buyback program in order to prop up the value of its own bid. (See article on back page.) Analysts said the arguments made by First Bank System appear to have improved the odds it will prevail, though observers remained split over who they think will win the takeover war. "They helped advance their case," said David Berry, director of research for Keefe, Bruyette & Woods Inc. Kim Kellogg, a Wells Fargo spokeswoman, was not able to respond by press time to First Bank's arguments. But she said Wells believes that the full- page advertisements violated securities rules. The company is asking for an opinion from lawyers with the Securities and Exchange Commission. In their dissection of Wells' cost-savings estimates, Mr. Grundhofer and Mr. Zona said the San Francisco-based bank had overstated both the amount of cost savings available from closing branches in California, and from other back-office and administrative areas. Wells, in its original unsolicited bid of Oct. 18, said the deal would reap $800 million in cost savings. By Nov. 13, the bank had upped its estimate to $1 billion. But in their conference call the First Bank officials said Wells could save a mere $585 million. Mr. Zona said the only way that Wells could cut more costs than First Bank would be by closing California branches, since First Bank doesn't operate in that state. But Mr. Zona said that First Interstate's annual branch expenses amount to only $495 million a year. Even if all of First Interstate's branches were closed, cost savings would not exceed $275 million, since some branch staff would have to be retained to handle increased customer volumes at remaining branches. Mr. Zona added that it is likely that only three-quarters of the branches would be closed, for cost savings of $200 million. Such closures, he said, would result in a loss of $2.2 billion of deposits, or $110 million of net interest income. If Wells proceeds with its planned divestitures in California of 15 branches and $900 million of deposits, revenues would be further reduced, making the net difference in cost savings between the two merger proposals only $85 million. Significantly, Mr. Zona added that First Bank officials believe Wells would have to divest more branches and deposits than it is expecting, and even some loans. First Bank estimates the loss of deposits at $1.6 billion. Mr. Zona also pointed out that a First Bank merger would be better for First Interstate shareholders, since they would own 58% of the combined company. If Wells wins the bidding war, First Interstate shareholders would only own 52%. "Wells Fargo's offer is clearly great for their shareholders, but inferior in its impact for First Interstate shareholders," Mr. Zona said. George Salem, an analyst in New York with Gerard Klauer & Mattison, acknowledged that First Bank System made a persuasive case. As a result, he has reduced his opinion of the probability of Wells' success from 90% to 70%. Mr. Berry of Keefe Bruyette said he now thinks the odds favor a First Bank System victory in the takeover battle. If most investors believe the offers are similar in value, they are more likely to side with First Interstate management and support the First Bank agreement, he said.

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