Just as the American Civil War ripped apart families by forcing them to choose sides, the banking industry's first contested merger in nearly a decade has divided some Wall Street investment houses.
The bidding war between First Bank System Inc. and Wells Fargo & Co. over First Interstate Bancorp has sparked passionate debate - and provoked some unprecedented internal divisions within several of the firms that are involved in the $10 billion drama.
First Interstate, which has signed an agreement to merge with First Bank, hired Morgan Stanley & Co. as an adviser. But Morgan Stanley Asset Management is privately supporting Wells Fargo's hostile bid, Wall Street sources said.
Donaldson, Lufkin & Jenrette is the broker in charge of First Bank's controversial share repurchase, and its analyst Thomas K. Brown is a close friend and golfing partner of the bank's top two executives. Mr. Brown, however, supports Wells Fargo.
And in a rare public display of internal disagreement at a Wall Street firm, Brown Brothers Harriman & Co.'s two bank analysts have chosen sides: Nancy Bush, who covers regional banks, is urging First Interstate investors to side with First Bank, while Raphael Soifer, who covers First Interstate, is pushing them to vote for Wells.
"This is the first contested situation since Irving, and it is a bitter one," said Peter Perraca, an investment banking consultant at Salomon Brothers, referring to Bank of New York Co.'s hostile purchase of Irving Trust Co. in the late 1980s.
"This is going to generate a lot of interest and excitement, and with the public relations game going full tilt on both sides, you will have many conflicting views."
But Mr. Perraca and other investment bankers said they had never heard of a case where two analysts at the same firm had publicly issued conflicting reports on such an important event.
In a mid-December report that First Bank has touted to the media, Ms. Bush wrote: "The financial press seems to be falling all over themselves in the last few days to close the coffin lid on the merger of First Bank and First Interstate, but we caution investors from falling prey to that mistake."
But in a report issued four days later - and touted by Wells - Mr. Soifer wrote that the Wells bid was superior to the First Bank bid, and were the shareholder vote taken at the time, Wells would win.
Public disagreement between analysts at the same firm is extremely rare, said George Salem, a bank analyst with Gerard Klauer Mattison. While Brown Brothers' investors have the benefit of both opinions, they are not receiving a clear directive on how to invest their capital, he said.
Mr. Soifer and Ms. Bush did not comment. Brown Brothers, which is known for allowing its analysts free rein to express their opinions, also had no comment.
At Donaldson Lufkin, Mr. Brown has long been a vocal supporter of First Bank System, and still maintains a "buy" rating on the midwestern bank. Whether his support for Wells Fargo will jeopardize his friendship with First Bank's chief executive John Grundhofer and chief financial officer Richard Zona, or his firm's relationship with the bank, remains to be seen.
Donaldson is First Bank's primary broker, and has been buying the bank's shares as part of a massive share repurchase program over the past few months. That share repurchase has drawn criticism for allegedly inflating First Bank's share price.
Mr. Brown played golf in Scotland last year with Mr. Zona, Mr. Grundhofer, and his brother Jerry Grundhofer, the CEO of Cincinnati-based Star Banc. The analyst insists his position will not affect the friendships, or another planned trip to Scotland this June.
"Would they like me to come to a different conclusion, definitely," Mr. Brown said. "But come June, Zona, Grundhofer and I will be over in Scotland, drinking beer, playing golf, and maybe yelling at each other. But we will still be friends."
One investment banker, however, said he would not be surprised if First Bank dropped Donaldson Lufkin as a broker because of Mr. Brown's support for the competing Wells Fargo bid. First Bank would not comment on its relationship with the firm or whether the June golfing trip with Mr. Brown would proceed as scheduled.
Reliable sources at Morgan Stanley say the firm's asset management group is siding with Wells Fargo, despite corporate finance's role with First Interstate. Morgan Stanley had no comment.
The sources said Morgan Stanley Asset Management has privately derided the First Bank bid, and plans to vote for Wells Fargo's offer, currently $13.11 a share more valuable than First Bank's.
