First Interstate Bancorp's acquisition of a failed Oklahoma bank was just a foretaste of major future mergers, according to Joseph J. Pinola, First Interstate's ambitious chief executive.
"Our stated goal in life is that we're going to be a national provider of financial services. In order to be a national provider, you have to do a lot of shopping," Pinola said in an interview Tuesday.
First Interstate won the bidding on Monday for First National Bank & Trust of Oklahoma City, a bank with $1.6 billion in assets that was dragged down by severe loan losses to oil firms and farmers and a continuing run on deposits.
First Interstate, based in Los Angeles, is the nation's ninth-largest banking firm with more than $50 billion in assets. In recent years, Pinola has been on the prowl for opportunities to expand First Interstate's 18-state banking empire and has even made merger overtures to troubled Bank of America, the second-largest bank in the United States.
Bank of America rebuffed Pinola's friendly merger offer, but the opportu-nistic bank executive has continued to seek partners large and small. Pinola said he looked for takeover targets that he could acquire without going deep into debt or diluting the parent company's profits.
"We have no intention of imperiling our very strong financial position just for the sake of growth," he said.
First Interstate today owns 21 banks in 12 Western states and licenses 10 additional banks, some of them in other states, under an unusual franchise arrangement in which a bank pays First Interstate a fee for the use of its name, banking products, electronic systems and marketing power. Since 1983, First Interstate has licensed franchises from Hawaii to Indiana with total assets of more than $4 billion.
Under terms of the takeover of the failed Oklahoma bank, the Federal Deposit Insurance Corp. will pay First Interstate $72 million to assume ownership of the institution. First Interstate thus acquires First National's $1.5 billion in deposits and $1.2 billion in loans and other assets. The FDIC will retain, and eventually liquidate, $412 million of the Oklahoma bank's bad loans.
A First Interstate executive, echoing Pinola's brash tone but requesting anonymity, said of the Oklahoma deal: "We're just warming up. We can swallow one of these a day."
Analysts said the Oklahoma bank rescue was an easy way to add a state to First Interstate's cross-country march.
"It looks to me like a no-cost or low-cost way for First Interstate to expand its franchise in the West and Southwest," said Don Crowley of the San Francisco office of the investment firm Keefe, Bruyette & Woods. "While it's not an attractive market to get into, I think management's view is that if they could move into that area at low cost and little risk, it was worth doing."
In Oklahoma City on Tuesday, the bank--now known as First Interstate Bank of Oklahoma City--opened at 8 a.m. as employees gathered in the lobby for a briefing by J. G. Cairns, the bank's chairman and chief executive.
Cairns said he told workers that they would be paid on time, that no jobs would be eliminated and that the bank's management would be unchanged.
However, Cairns said he was resigning his position as chairman of First Oklahoma Bancorporation, the former holding company for First National.
Federal regulators cited a collapse in depositor confidence as a major factor in their decision to close and sell First National. The bank lost about 22% of its total deposits and borrowings in the last 18 months as persistent rumors of its imminent failure spread.
It was the second-largest commercial bank failure ever, following only Franklin National Bank in New York, which had assets of $3.6 billion and failed in 1974.
Regulators and banking industry analysts have said that the Oklahoma bank was one of the U.S. banks hardest hit by the drastic fall in oil prices and the financial problems of hundreds of firms and individuals in the oil business.
The bank's parent, First Oklahoma, lost $171 million over the past four years, primarily on loans to firms in energy, agriculture and real estate.
"As the community suffers, the banks suffer. And this bank suffered," Cairns said. "But now rejuvenated, if you will, with the new capital and with these problem loans gone, the bank is in such a beautiful position to help people now through these difficult times and finance the recovery and the diversification of our economy."
First National was the 68th U.S. bank and the sixth in Oklahoma to fail this year.