National Bancorp of Alaska said late Tuesday it had signed a letter of intent to merge with Wells Fargo & Co. in a deal valued at $907 million.
Edward B. Rasmuson, the Anchorage-based banking company's chief executive, said in a statement: "I've always said that we need to be part of a large financial institution." The acquisition will provide San Francisco-based Wells Fargo with $3.1 billion of assets, 54 branches, and a dominant position in the state of Alaska.
The deal had been rumored for several days, but still took some by surprise. As late as Monday afternoon, Mr. Rasmuson dismissed rumors of the deal as mere speculation. National Bancorp's stock closed at $39.75 per share Tuesday, an increase of 21%; Wells Fargo closed down 1.5%, at $40 per share.
Adding to the skepticism that some observers held about the possibility of a deal was the fact that Alaska is one of the slowest growing states in the nation. The Alaska economy is heavily dependent upon the petroleum industry, which has not been expanding in recent years, is sparsely populated with 616,000 people and has a lackluster 1% economic growth rate.
In addition, Alaska is a state where local independent banks have managed to remain the leading financial institutions, stubbornly staving off outside companies.
All of these factors have made it difficult for outsiders to break into the Alaskan market, much less turn a handsome profit.
Bank of America Corp., for example, sold or closed 12 branches in the state this year. Wells Fargo in 1996 dumped its Alaska operation, which was acquired as part of the bank's deal to buy First Interstate Bancorp.
If Wells buys closely held National Bancorp, however, building meaningful market share would no longer be an issue - Wells would instantly become the biggest bank in the state. National Bancorp has a 45% share of the state's deposits; its largest competitor, First National Bank of Anchorage, owns 21% of the $4.3 billion of deposits in the state. Cleveland-based KeyCorp, the only major out-of-state competitor in Alaska, is third, with about 11% of the state's deposits.
"Even in a slow growth market, it's beneficial to take the dominant market position," said Joseph K. Morford, an analyst with Dain Rauscher Wessels in San Francisco.
The former Norwest Corp. of Minneapolis, which merged with the old Wells Fargo in November 1998, has been squeezing profits out of slow growth markets in the Midwest. Its done this by increasing the number of products it sold to each of its customers, said Ben Crabtree, an analyst with George K. Baum & Co. He added that he expected Norwest's much-touted cross-selling prowess to be infused into the merged banking company under the direction of former Norwest chief Richard M. Kovacevich, who now heads Wells.
"This is a bank that has its beginnings in the upper Midwest, which hasn't been a big growth market for decades," Mr. Crabtree said. "If you look at what they've done there, you have to say that they can probably do the same in Alaska."
The potential challenge, he added, lies in maintaining growth.
"Once you get each customer up to six or seven products, what do you do then?" Mr. Crabtree asked.
Tuesday's announcement marks the 14th deal the banking company has announced since the merger of Wells Fargo and Norwest. Since then the $207 billion-asset Wells Fargo closed seven acquisitions of banks with an average asset size of $250 million. Seven bank acquisitions, including the Alaska deal, are pending.
The next largest deal is for Prime Bancshares in Houston, which has assets of $1.2 billion; the acquisition is still pending. With the close of the National Bancorp deal announced Tuesday and a pending deal in Michigan, Wells Fargo will have retail banking operations in 23 states.