A post-merger First Security Corp. will find it harder to achieve some cost savings as a result of new regulatory demands that could complicate future dealmaking between banks.

On a campaign to prevent merging banks from gaining monopolistic control over local markets, the Justice Department, which approved the Utah deal last week, set branch sale requirements that erased some of the efficiencies the banking companies had foreseen. The Federal Reserve approved the deal this week, paving the way for shareholder approval of the merger of Zions Bancorp and First Security, both of Salt Lake City, on Dec. 28 -- about a month later than expected.

The regulators "are not just requiring divestitures and the selling of assets, but they are also making sure that whoever buys them becomes a formidable competitor to the selling bank," said James R. Bradshaw, an analyst at Pacific Crest Securities in Portland, Ore.

"This new attitude will have an effect on the classic in-market deals like the Zions-First Security merger," Mr. Bradshaw said. "It makes it a bit harder to drive cost savings."

Dale M. Gibbons, Zions' chief financial officer, said the new First Security would achieve its promised $108 million of pretax, noninterest expense cuts by the end of 2001 but acknowledged that the post-merger company would look different from what executives had envisioned.

"If we could have selected each of the branches to be sold, we would have proposed a slightly different set so we could engage in more consolidations," said Mr. Gibbons, who will be chief financial officer of the new, $40 billion-asset First Security.

Because both companies were heavily concentrated in their home state, the complexities of figuring out which branches should be sold took regulators longer than expected, observers said. The companies will sell 68 branches, about $2.1 billion of deposits, and $660 million of loans.

"They had a huge market share in Utah, and it was an involved process trying to divide that up," said Erika L. Hill, a Seattle-based analyst at Pacific Crest Securities. "The schedule definitely got tight."

The 68 branches to be divested have been packaged into four market regions: Logan; St. George; and Park City, Utah; and Idaho branches plus a scattering in Utah, primarily along the Wasatch Front, Mr. Gibbons said.

In each market, the Justice Department required the new company to sell either Zions branches or First Security branches but not a combination from the two companies. So in some cases, the company lost an opportunity to consolidate a Zion's branch with a First Security branch.

FleetBoston Financial Corp. faced similar divestiture requirements in its recent merger in New England.

Mr. Gibbons said the companies wanted to divest isolated offices in each market so that the combined company could reap cost savings from consolidating customers, assets, and operations of neighboring branches.

Whether the four packages are bought by one or several banks depends on the attractiveness of the bids, which are due today, Mr. Gibbons said. The management team is aiming to reach a final sale agreement by Christmas, he said.

Analysts said Zions and First Security would probably prefer to sell the four branch packages to different banks.

"They would like to distribute these branches to four different institutions to prevent the instant creation of a new, very viable competitor in the marketplace," said R. Jay Tejera, an analyst at Ragen MacKenzie Inc. in Seattle.

Bid packages were sent to 30 banks. Large competitors in Utah and Idaho are the most likely buyers, observers said.

San Francisco-based Wells Fargo & Co., U.S. Bancorp in Minneapolis, and Community First Bankshares in Fargo, N.D., have all expressed interest in the branches. Other companies likely to show interest include Cleveland-based KeyCorp and Washington Mutual Inc. of Seattle. Bank One Corp., a big player in the divestiture areas, is unlikely to be interested in buying branches, given the turmoil it has faced lately, Mr. Tejera said.

Two smaller, "wild card" candidates are Montana Bank Systems of Billings and Sterling Financial Corp. of Spokane, Wash., he added.

The post-merger company is to convert and consolidate branches in Nevada in January, California operations in early February, and Utah and Idaho branches in late April, Mr. Gibbons said.

Analysts said the economic impact would be minimal. "They just won't be able to make the stretch-goal savings they thought they might be able to achieve by doing some consolidations," said Joseph K. Morford, an analyst at Dain Rauscher Wessels in San Francisco.

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