First Interstate nears more big writeoffs.

First Interstate nears more big writeoffs

Hammered by soured investments in Southern California real estate, First Interstate Bancorp is bracing to announce another round of huge loan writeoffs, as well as a large number of worker layoffs, according to a management source at the bank.

According to the source, who spoke on condition of anonymity, Los Angeles-based First Interstate is expected to take a charge of $200 million to $300 million due to bad real estate and middle-market business loans for its third quarter.

This would be on top of a $295 million loan hit in the second quarter, which the bank announced last month. It attributed that writedown, which resulted in a $80.3 million loss for the quarter, mainly to credit risks in Nevada, Oregon and California real estate.

In addition, the bank is expected to announce a $150 million to $175 million charge as part of a restructuring to reduce non-interest expenses, according to the source. He said significant layoffs - he speculated on the scale of 500 to 1,000 jobs - would be part of the restructuring.

A top First Interstate official said the bank would not comment on "marketplace rumors."

A largescale reduction of staff could mean an even larger pool of unemployed bankers in the West and in California in particular. Analysts estimate that 20,000 employees of San Francisco-based Bank-America Corp. and Los Angeles-based Security Pacific Corp. will lose their jobs as a result of their merger.

First Interstate had 33,407 employees as of June 30, down 2,000 from the end of 1990 and nearly 5,000 less than its high of 38,270 employees in 1988.

In part the reduction reflects the sale of the banking firm's insurance and credit card subsidiaries as well as the sale of three banks in New Mexico.

Some in the bank have said that large cuts in the company's flagship California bank are expected and another source at the bank said layoffs are expected in the retail banking operations, but not on the corporate side.

A source in the executive search firm industry said that in mid-August, the bank suddenly stopped recruiting for two senior management line positions, one in the California bank.

"It told me that there were some pretty important strategic management things they were thinking about that they couldn't pursue," the search consultant said.

The cuts may also reflect an ongoing consolidation announced in a memo issued Aug. 30.

The internal memo - which emphasized the need to become one banking company, not a collection of banks - said that the operations of First Interstate's operations in five Northwestern states would be consolidated and regionalized, with a new expanded northwestern region to be composed of Oregon, Washington, Idaho, Montana and Alaska.

Another region has been created for the Southwest, containing banks in Arizona, Nevada, Utah, Colorado, Wyoming and New Mexico.

"Continued refinement of management structures is an important element in First Interstate's transition to a single banking company," ran the memo. "That transition also includes introduction of common products, policies, systems and operations throughout the bank's 12-state territory."

Observed an analyst, "To me, this is saying that the company wants to streamline and get its expense ratio rationalized - possibly because they want to avoid a merger."

Another analyst said, however, that becoming more efficient would also increase the bank's attractiveness to potential merger partners. "The better the bank performs, the more attractive they are as a merger partner and the more money they would bring in - although I don't think that is (management's) motivation."

Since Security Pacific and Bank of America announced merger plans on Aug. 12, some analysts have argued that First Interstate and San Francisco-based Wells Fargo & Co. would have to merge in order to effectively compete.

Both First Interstate and Wells Fargo have taken pains to emphasize that they can do just fine without a merger.

Some banking industry experts, however, regard First Interstate as the least efficient of the nation's large banks, with expense ratios far above the other institutions' and wide variations in operational procedures among its far-flung banking subsidiaries.

"First Interstate is not on the same underwriting standards in all the states it serves," said Jay Tejera, an analyst at Dain, Bosworth in Minneapolis, Minn. "The subsidiary banks have been run as fiefdoms. (First Interstate Chief Executive) Ed Carson is sick of sloppy underwriting. Just as one fire gets put out, another one pops up."

- Vrana is a staff reporter for the Orange County Business Journal.