Banking powerhouse expands in California.

Norwest plans to buy financial services concerns

Norwest Corp. plans to significantly increase its presence in California in the near future, but not necessarily by buying banks and thrifts, Richard M. Kovacevich, chairman and chief executive officer of the Minneapolis-based banking company said in a recent interview with the Business Journal.

Kovacevich, whose oft-stated goal is to build Norwest into the premier financial services provider in the United States, plans to expand the company's presence in California by starting up or buying financial services companies here, he said.

Norwest is the 13th-largest banking company in the country, with $61 billion in assets. In recent months, Norwest announced two major deals with California-based companies.

In April, Norwest announced it had signed an agreement with San Francisco-based Wells Fargo Bank to originate all residential mortgage loans for Wells Fargo, the second-largest bank in California.

Under terms of that deal, Norwest is to have desks in Wells Fargo branch offices across the state, said Wells spokesman Dan Conway. Norwest will originate the mortgages, he said.

The loans then will be split between Norwest's portfolio and Wells' portfolio, Conway said. The percentage of loans that Wells and Norwest will each get is still being worked out, he added.

In May, Norwest announced it had signed a definitive agreement to acquire West L.A.-based Foothill Group Inc., a commercial finance company, for $441 million.

Norwest plans to merge Foothill Group with Norwest Business Credit, the parent corporation's existing commercial finance subsidiary, later this year.

More deals to come?

Those two back-to-back announcements have the California banking community wondering where and when Norwest may strike next.

Kovacevich, in a telephone interview with the Business Journal, was quick to point out that Norwest Corp. has already been in California for several years.

"California is a huge market, and we have participated in that market (in the past) and feel we need to continue to expand there," Kovacevich said.

Norwest Financial, the company's consumer finance subsidiary, currently has about 100 "stores," as Kovacevich likes to call them, in California. Of those, 31 are in L.A. County.

And Norwest Mortgage, the corporation's mortgage banking subsidiary, has more than 70 offices in the state, three of which are in L.A. County.

Kovacevich said Norwest intends to expand three major businesses in the state: mortgage banking, consumer finance and commercial finance.

Asked if he plans to buy a bank or a savings and loan, Kovacevich said, "I would not rule out a banking presence in California. But by the same token. it's not a priority state for us, mainly because there are already a lot of major players entrenched in California."

Eyeing big targets

"We want to be in a geographical area where we can have a significant market share - be one of the top one or two in the market," Kovacevich added.

Kovacevich acknowledged that, to achieve that much market share in California, Norwest would have to buy either downtown L.A.-based First Interstate Bancorp or Wells Fargo. Those banks, which each have about $50 billion in assets, are the second- and third-largest banks in the state.

Kovacevich said, "We don't really like to talk about that particular issue, but to my knowledge, neither of those companies is interested in a merger."

(The largest California bank, San Francisco-based Bank of America, with about $200 billion in assets, is considered too big for any bank to buy.)

But Norwest doesn't need to buy a bank, or S&L to expand its presence in California, he said.

Dominant mortgage lender

Kovacevich said Norwest's recently announced deal to form "an alliance" with Wells Fargo will give Norwest a significant presence in the California mortgage lending market.

According to Conway of Wells Fargo, beginning in the third quarter of 1995, Norwest will have "a desk" at each of the 600 or so Wells Fargo bank branches across the state.

Wells Fargo customers who inquire about home loans will be directed to the Norwest desk, Conway explained.

Wells is getting out of the home loan origination business because there is "substantial excess capacity" in the mortgage market and because loan pricing in California has not been "competitive" of late, he said.

Kovacevich said Norwest can make a profit in that business because it is the No. 1 originator of mortgages in the United States.

"Because the impact of technology in that business is extremely significant, you have to be a major player in that business to be competitive," he said. "You have to be of a size, I don't want to say you have to be a national player, but fairly close to that, to generate the kind of revenues to be a major player."

Kovacevich predicted that the mortgage origination business may evolve much like the credit card business did in the last several years.

"A couple of years ago, every bank had its own credit card," he said. Now, most of the U.S. credit card business is controlled by 10 or 15 banks, he said.

Out-of-state predators

Norwest intends to continue being a major player in the mortgage origination business, he said.

Kovacevich added that he is confident Norwest can achieve a substantial presence in the financial services market in California without buying a bank or thrift.

Banking experts have long mentioned Norwest as one of the big out-of-state banking companies that would jump into the California market by gobbling up existing financial institutions here.

Other banking companies reportedly interested in expanding in the state are Charlottesville, N.C.-based Nations-Bank Corp. and Columbus, Ohio-based Bane One Corp.

Kovacevich said he doesn't think other big banking companies could enter the California market the way Norwest is doing it.

Other big, out-of-state banks "really don't have the extent of financial services (that Norwest has). My guess is, if they come (to California), they would come as a bank, as opposed to buying the three businesses we're interested in."

Kovacevich stated that establishing a major presence in California is key to the company's goal of achieving national prominence.

"We view ourselves as a national financial services company," he reiterated. "You can not be a major financial services company in the U.S. and not have a presence in the state with the largest economy and the largest population."