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Time for Another Wells Fargo Merger?


With Monday's plans for a blockbuster merger involving cross-town rival BankAmerica Corp., Wells Fargo & Co. is suddenly facing renewed pressure from Wall Street to put itself up for sale or to bulk up by buying another institution.

The most likely scenario, industry analysts and executives agree, is that San Francisco-based Wells would be acquired, probably by a super-regional bank such as U.S. Bancorp of Minneapolis. And a sale of some sort is apparently what investors are betting on, as they propelled Wells' stock by more than 5% on Monday to an all-time high of $370.94 on the New York Stock Exchange.

"If you look at what the market is telling you, they expect Wells to be acquired," said Richard Mount, president and chief executive of Saratoga Bancorp, a community bank in the Silicon Valley that, like other small financial institutions, sees crumbs to be scooped up in the $62.5-billion merger of BankAmerica and NationsBank Corp. in Charlotte, N.C.

With every new merger announcement, Wells looks more and more like a vulnerable mid-size bank. Washington Mutual Inc.'s recent agreement to buy H.F. Ahmanson & Co. would put Wells at a distant third in California market share, and the BankAmerica merger plans announced Monday make Wells look even smaller. If regulators approve the BankAmerica deal, the resulting bank would be the nation's second-largest, with assets of about $570 billion and about 180,000 employees--almost six times Wells' asset and work-force sizes.

"Scale is becoming increasingly important in this business," said Joseph Morford, a banking analyst at BT Alex. Brown Inc. in San Francisco. "This puts more pressure on Wells to sell."

Morford and other analysts don't see Wells as much an acquirer as a target because the bank is still working through problems from its April 1996 acquisition of First Interstate Bancorp. Wells officials declined to comment Monday.

But some analysts think Wells can stay independent if it boosts its earnings. To be sure, Wells still has a formidable operation, with more than 1,900 branches and 4,400 automated teller machines in 10 states.


Before its troubles with digesting First Interstate became apparent early last year--driving its shares down to a low of $245 last April--Wells had been a longtime a favorite of Wall Street. Its single-biggest investor is Warren Buffett, whose company, Berkshire Hathaway Inc., owned almost 8% of Wells' stock at the end of last year. Wells stock has rebounded in recent months, thanks partly to improved performance but also to growing speculation that Wells would buy or sell.

"I don't think Wells fears anybody from a competitive standpoint," said R. Jay Tejera, an analyst at Dain Rauscher in Minneapolis. But he noted that Wells, along with Union Bank of California, may be one of the last major targets in the West for an East Coast or Midwest super-regional bank seeking to push to the Pacific.

"Nobody has as comprehensive a franchise in the West as Wells, so they're attractive. The demographics are attractive in the West," he said. Wells has branches in California and the Sun Belt, which are the nation's fastest-growing areas in population.

However, with most of the large buyers in the East preoccupied with other acquisitions, analysts don't think a bid for Wells would emerge immediately. In fact, BankAmerica's partner, NationsBank, had long been rumored to be interested in or talking with Wells.

Moreover, Wells is not cheap by any stretch, raising questions about just what kind of premium Wells investors could fetch in any transaction.

Based on estimated 1998 earnings of about $15 a share, Wells stock is priced at nearly 25 times earnings. BankAmerica, by contrast, sells for 19 times earnings. Even for a premier franchise like Wells, the price is getting steep, analysts say.

Some analysts mentioned Charlotte-based First Union Corp. as a possible suitor, but the consensus is that the most likely partner for Wells would be U.S. Bancorp, which has a strong stock, good cash flow and is relatively unburdened by other mergers, although it is completing an acquisition in the Pacific Northwest.

The only hitch is that U.S. Bancorp may run into antitrust problems in Oregon and Idaho and also perhaps Nevada, because Wells also has a sizable presence there, so a combined bank could exceed the generally accepted 30% market share ceiling on deposits.

Still, analysts say that U.S. Bancorp and Wells have compatible operating philosophies, and that there are geographic benefits and other kinds of synergies to be obtained in a merger. U.S. Bancorp's chief executive and president, John F. Grundhofer, is a former vice chairman of Wells.


In fact, Grundhofer and Wells' CEO, Paul Hazen, started out together as vice presidents at Union Bank in Orange County, before both left for Wells in the early 1970s to join Carl Reichardt, the legendary Wells CEO from whom both learned a streamlined, bare-bones approach to banking.

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