Bancorp apparently was inflated by heavy repurchasing of First Bank System shares, critics of the deal said last week. Supporters of a rival bid by Wells Fargo & Co. cited market research showing that Donaldson Lufkin & Jenrette bought 2.4 million shares between Nov. 6 - the day First Bank System emerged as a white-knight suitor for Interstate - and last Wednesday. The trading represented 47% of the total volume in First Bank during the period and a sharp increase in trades by DLJ, the brokerage firm that is running the Minneapolis bank's ongoing share repurchase program. It cannot be determined from the data whether the buys were on behalf of First Bank or on behalf of other DLJ customers. But with First Bank and Wells Fargo locked in a bidding war in which the value of their respective shares is critical, some observers are taking a cynical view. "You want the marketplace to work in a fair and square manner, and if in fact First Bank System is buying back their stock they are tilting the playing field and it can be misleading to who is winning the tug of war," said George Salem, a bank analyst with Gerard Klauer & Mattison. First Bank System has declined to say whether it has repurchased shares. "If and when we are in the market, it would be under our previously announced share repurchase program," said Wendy Raway, a bank spokeswoman. "We are aware of our obligations under Securities and Exchange Commission accounting rules, and follow them scrupulously," she added. "The rules are designed (to prevent) a repurchase program from leading the market, by limiting the timing, volume, and types of repurchase transactions." DLJ bank analyst Thomas Brown said in a conference call with investors last week that he could not comment on whether shares were being repurchased by First Bank, because his firm was in charge of the repurchase program, analysts who listened to the call said. A spokeswoman for the brokerage firm could not provide any information on the trading in time for this story. Whether or not it was related to the share repurchase program, DLJ clearly stepped up its trading in First Bank stock during the time in question, according to data by Autex and Bridge Data, firms that monitor daily trading information. On four different days in this period, DLJ bought more than half the First Bank System shares traded. And the day after the announcement, Nov. 7, DLJ bought nearly two-thirds of all shares traded. In the four trading days prior to Nov. 6 announcement, DLJ bought no First Bank shares. Adding to the impression that share repurchases could have been the purpose for much of the trading, of the 2.77 million shares First Bank shares DLJ traded, 85% were buys, a very high figure, analysts said. Under the repurchase plan, First Bank is expected to buy four to five million shares this quarter, said Henry C. Dickson, a banking analyst at Smith Barney. But given that so many shares appeared to have been repurchased in the days following the First interstate announcement, some analysts wondered if the buys would be viewed as appropriate. "This is a gray area," said David Berry, an analyst with Keefe, Bruyette & Woods Inc. "Different accountants give different companies different conclusions." For example, Chemical Banking Corp. has temporarily suspended its large share repurchase program before its shareholder meeting next month so as not to influence its stock, analysts said. Wells Fargo chief executive Paul Hazen, when questioned last week about rumors that First Bank System was buying back its stock, expressed surprise at the news and said it showed the bank had no confidence in the value of its bid. He also said that Wells, which has an enormous share repurchase program, has suspended its plan under the advice of legal counsel during the bidding contest. Wells' supporters argued that the buying may have helped keep First Bank's bid competitive with Wells' bid. In the days covered by the Autex data, First Bank's stock rose 3.2%, while Wells fell 1.5% However, Mr. Dickson questioned whether First Bank's repurchases, if true, were necessarily tied to its Interstate bid. "Clearly a buyback helps support a stock's price," he said, "but the banking industry also has a lot of capital it needs to buy back."

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