When Zions Bancorp and First Security Corp. were ordered to sell 68 branches to win approval for their merger, Utah community banker Howard G. Holt thought he saw an ideal opportunity to expand First National Bank of Layton, his $130 million-asset institution.

His optimism vanished as soon as he learned that the Department of Justice had ordered the branches to be sold only in large clusters, an arrangement that effectively shut out his bank.

"We're just a small bank and wouldn't be able to buy more than a couple of branches," said Mr. Holt, First National's president and chief executive officer. "Perhaps if I were on the other side of the table working at Zions or First Security, I'd have done the same thing … but I'm disappointed we weren't able to take advantage of this sale."

Mr. Holt is not alone. Community bankers throughout Utah are just the latest to grumble about merger-related divestitures dictated by the Justice Department. Such divestitures tend to favor large out-of-state banks, these bankers argue.

In the Justice Department's view, requiring that the 68 branches be sold in large clusters is necessary to prevent the combined Zions-First Security from dominating the market. The ruling, which was consistent with past orders regarding divestitures, specifically ordered that a single buyer acquire the 28 branches being divested in the Salt Lake City-Provo-Ogden market.

But community bankers say they were led to believe after the June merger announcement that they would have a shot at bidding on some of the divestitures.

Besides griping that the branches are being sold in lots too big for them to bid on, the bankers are also frustrated that they were not given enough time to prepare a joint bid on clusters of branches so that they could later divide up the branches among themselves.

"They're selling these branches off in packages so big that no community bank in Utah could purchase unless they raised substantial additional capital," said Dale Gunther, president of $310 million-asset Bank of American Fork.

Interested banks got an information package Dec. 9. Community bankers say that left too little time to put together a bid by the Dec. 17 deadline.

"We had a number of banks interested in going together on a bid package, but that takes more time than they allowed," said Ron Heaton, president and CEO of $210 million-asset State Bank of Southern Utah in Cedar City. "First you have to get permission to talk with each other because of confidentiality agreements, then you have to get a deal approved by all the boards, and then you have to put the capital together."

First Security and Zions had expected to complete their $5.9 billion deal last month, but regulatory delays over which branches would be sold have held it up. The companies' shareholders are expected to approve the merger next Tuesday.

Harris H. Simmons, Zions' president and CEO, said the companies did not intend to shut out community banks. But he said they also wanted to name the buyers before the yearend.

"We tried as best we could to create a process that presented opportunities to community banks within the time constraints we were facing and the limits of what we were required to do by regulators," Mr. Simmons said.

He added that if the Justice Department had treated Salt Lake City, Provo, and Ogden separately, community banks would have had more opportunity to buy just the branches in one of the cities. Zions and First Security also would not have needed to sell as many branches to meet regulator-imposed market-share limits, he said.

"They created the worst of both worlds for us and community banks," said Mr. Simmons, who will share CEO duties of the combined company with First Security's Spencer F. Eccles.

A spokeswoman for the Justice Department did not return phone calls. An assistant provided a Dec. 8 news release saying that the divestitures would preserve competition in Utah.

Bid packages were sent to about 30 banks. Observers say the buyers are likely to emerge from a group of out-of-state banking companies that already compete in Utah, including U.S. Bancorp of Minneapolis, San Francisco-based Wells Fargo & Co., KeyCorp of Cleveland, and Community First Bankshares Inc. of Fargo, N.D.

The Utah sale contrasts with Fleet Financial Group's purchase this year of BankBoston Corp. and the subsequent divestiture of more than 300 branches.

In that case, one large company - $25 billion-asset Sovereign Bancorp of Wyomissing, Pa. - won the bulk of the spoils. But about 35 branches were reserved for community and regional banks in Massachusetts and Connecticut, in part because trade groups lobbied the Justice Department to give all banks a crack at the bidding.

"We realized this was going to be one of the last major divestitures in Massachusetts, so we wanted it to work well for all local banks," said Daniel Forte, president and CEO of the Massachusetts Bankers Association.

With little chance to bid in Utah, community bankers now are dreaming of customer runoff.

"If a large bank from out of state picks up the divested branches, there may be an exodus of customers to community banks," Bank of American Fork's Mr. Gunther said. "That's what we're hoping will happen."

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