Nine prospective buyers have made the first cut of bidders for the 61 California branches Wells Fargo & Co. is divesting in its merger with First Interstate Bancorp.

The diverse group - three big thrifts, five commercial banks, and a consortium of community banks - was culled from more than a dozen initial bidders, knowledgeable sources said. They are expected to be fierce competitors for what will be the largest branch divestiture ever in California.

"I hear the bidding is going to be pretty aggressive," said one banker involved.

Final bids are due on March 25, and a decision is expected March 28.

Perhaps the most surprising of the finalists, according to sources, is $5.6 billion-asset Zions Bancorp, of Salt Lake City. Zions is the only competitor that doesn't currently control a California bank or thrift. Last year, it acquired a 4.9% stake in Grossmont Bank, the largest bank headquartered in San Diego, with $464 million of assets.

Knowledgeable sources said Zions is bidding for a Southern California package of branches, with plans to add those in San Diego to Grossmont, and to divest the rest.

Zions chief executive Harris H. Simmons declined to comment. But in the past he has made no secret of his interest in expanding westward through acquisitions, and his belief that San Diego is an attractive banking market that is on the rebound after a long recession.

Observers said the bidders facing the longest odds in the competition are the thrifts - H.F. Ahmanson, Great Western Financial Corp., and Glendale Federal Bank.

That's because each of the thrifts is new to small-business lending. Maintaining strong competition in small-business lending is one of the principle goals of the Justice Department in forcing Wells to make the divestiture. The Justice Department gets final approval, and sources expect it to be reluctant to accept a thrift.

"Obviously, one thing you've got to do is communicate with the regulators to convince them you're a viable competitor," said one thrift executive. "You'd be safe to assume we're doing that."

According to sources, Chatsworth, Calif.-based Great Western is pursuing the entire set of branches, as is Irwindale, Calif.-based H.F. Ahmanson. Glendale Federal Bank was said to be going after only the southern half.

Union Bank was selected as a finalist for the Northern California package, as were Bank of the West and U.S. Bancorp.

Another finalist for part or all of the branches was said to be SDN Bancorp of Encinitas, Calif. The bank is led by Robert P. Keller, who sold New Dartmouth Bank in New Hampshire to Shawmut National Corp. in 1993.

The bank owns $58 million-asset San Dieguito National Bank in San Diego, and is in the process of acquiring $146 million-asset Liberty National Bank in Huntington Beach, and $219 million-asset Commerce Security Bank of Sacramento. It also has the backing of investors who could afford the entire branch package, sources said.

The investment banking firm Hovde Financial is leading the consortium of community banks, which is bidding for the entire package. Companies that reportedly submitted bids but didn't make the cut include First Hawaiian Inc., First Nationwide, and Cal Fed Bancorp.

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