Norwest Corp. and Wells Fargo & Co. will shed about $1 billion of deposits in order to gain approval for their proposed merger, according to a regulatory filing.
The companies will be required to sell bank branches in Arizona and Nevada. Without these divestitures, the combined Norwest-Wells would exceed Justice Department limits for market dominance.
For rival banks, the impending sale presents an unusual opportunity to pick up significant market share in two rapidly growing states that have already been heavily consolidated.
Zions Bancorp. and First Security Corp., two Salt Lake City banking companies that have been active acquirers, are expected to pony up for the branches.
The branch divestiture was disclosed in a filing to the Securities and Exchange Commission issued after the market closed Tuesday. Minneapolis- based Norwest and San Francisco-based Wells expect to complete their merger by yearend.
A Norwest spokeswoman said branches would be sold in Phoenix, Flagstaff, Yuma, Las Vegas, Reno, and Carson City, plus some smaller towns in both states. She did not specify how many branches would be sold, though she said the Justice Department had made it clear to the company that it would have to sell more urban locations than rural ones to ensure viable competition.
Norwest and Wells Fargo had a total of $13.4 billion of deposits in Arizona and Nevada, according to Sheshunoff Information Services. In Flagstaff, Ariz., the combined company would hold 40% of all deposits before divestiture, and 35% in Reno, Nev. Federal regulators generally prohibit banks from possessing more than 30% of deposits in any one market.
Norwest and Wells Fargo have told potential buyers that information on the branches would be available this month, people familiar with the sale said.
Smaller companies that have already expressed interest include Community First Bankshares , a company with $5.6 billion of assets based in Fargo, N.D. It has already bought branches in Arizona, Utah, and New Mexico. The chief executive of Pioneer Bancorp of Reno has also said he is interested.
The Arizona and Nevada markets are considered so enticing that in the past year they have attracted banks from as far away as Alabama.
Earlier this year, Compass Bancshares of Birmingham agreed to buy Arizona Bank of Tucson for $758 million, and Colonial BancGroup of Montgomery agreed to buy Interwest Bancorp for $22 million.
The anticipated Norwest/Wells Fargo divestiture would be considerably smaller than the 51 Indiana branches and $1.8 billion of deposits Banc One Corp. and First Chicago NBD Corp. had to sell to gain Justice Department approval for their pending merger. Union Planters Corp. of Memphis bought all the branches for $294 million, or a 16.3% premium.
The fact that Norwest and Wells Fargo have to sell about half as much in deposits demonstrates that fewer of the companies' branches overlap.
"These divestitures are based almost entirely on formulas, so it's rarely a surprise when Justice says you have to sell something," said William P. Boardman, head of mergers and acquisitions at Banc One Corp.
Justice Department officials determined there was so little overlap between NationsBank Corp. and BankAmerica that they required the companies to sell only 17 branches with $492 million of deposits. Fifteen of the branches to be sold are in Albuquerque.
For expansion-minded banks, branch auctions offer a chance to bulk up quickly in markets where they had had little or no market presence.
Sovereign Bancorp of Wyomissing, Pa., for example, bought branches the Justice Department required First Union Corp. to divest when it agreed to buy Philadelphia-based CoreStates Financial Corp.
Huntington Bancshares and SouthTrust Corp. both greatly expanded their Florida businesses by buying branches from NationsBank Corp. and Barnett Banks Inc. after Barnett agreed to sell to NationsBank last year.