THE BATTLE FOR FIRST INTERSTATE : Divisions Run Deep : Community Groups Laud, Lambaste Wells Bid at Hearing

Airing their feelings in public for the first time, community groups from across California revealed deep divisions about Wells Fargo & Co.’s proposed takeover of First Interstate Bancorp when they testified in Los Angeles on Monday at a hearing sponsored by the Federal Reserve.

Opponents argued that the merger would strip poor neighborhoods of basic bank services, cost jobs and remove an important source of credit from areas already bereft of capital.

Proponents, on the other hand, said the merger would help create jobs through a massive commitment of new economic development funds and continue the bank’s long-standing support of minority communities.

The fact that the Fed had taken the unusual step of setting aside four days for public comment on First Interstate’s two suitors, Wells and First Bank System Inc., underlined the growing importance of grass-roots groups in such high-profile transactions.

Some of the groups, such as the Greenlining Institute of San Francisco, have even acquired roles as power brokers. The institute negotiated a $45-billion commitment from Wells to community lending as a condition for supporting Wells’ takeover bid.

“The Wells commitment confirms something that we’ve been saying all along: that the community must be dealt with in these massive corporate transfers of money and of power,” Anthony M. Reese, the institute’s associate director, said in an interview.

“They’ve acknowledged that, they’ve come to the table with a bid, and they’ve created competition for helping our communities, competition that hasn’t existed before,” he added.

But that didn’t stop other groups from lining up against the proposed Wells takeover. Opponents Monday included RLA (formerly Rebuild L.A.), the Dallas branch of the NAACP and El Rescate, which provides legal and social services to Central American immigrants in Los Angeles.

“Neglected communities are densely populated and need more, not fewer, banking services,” testified Linda Griego, president of RLA and a member of First Interstate’s board of directors. “A merger of First Interstate and Wells Fargo threatens potential loss of local bank branches in these communities, which would result in a serious setback to RLA’s efforts.”

For their part, Wells executives testified that they would fulfill their commitments to community lending, and would not withdraw banking services from communities unless there were alternatives.

One key point of dispute was Wells’ pledge last month to commit $45-billion over 10 years for low-income housing, minority and inner-city economic development and small-business loans if the merger succeeds.

That commitment is believed to be the largest pledge ever under the Community Reinvestment Act, the 1977 law that requires banks to lend money in disadvantaged areas.

“I am convinced that Wells Fargo Bank is committed to serving our community the same way we are,” said Carl Casareto, a spokesman for The East Los Angeles Community Union, or Telacu.

But others greeted the pledge with skepticism.

“A $45-billion investment in community lending over the next 10 years . . . sounds wonderful, and certainly we need that kind of money,” added Quinta R. Seward, director of Communities for Accountable Reinvestment, a coalition of community groups, in an interview.

“The problem is, if people don’t have branches to get to the bank, then it really will not land in communities that need credit the most,” she said.

Alice Salinas, a board member of Communities for Accountable Reinvestment and one of the leaders of Esperanza House, which develops low-income housing, agreed.

“The [$45-billion] goals are unenforceable,” she said, adding: “A multimillion-dollar commitment spanning the entire state assumes the credit needs of neighborhoods of disadvantaged people are the same throughout the region. This is not the case.”

Another point of contention was the future of branch banking in impoverished communities. Griego testified that First Interstate already had more branches in neglected areas than Wells, and reiterated Wells’s statements that it would close 85% of First Interstate’s 430 California branches.

“The First Interstate branches in neglected communities might be targets for closure,” she said.

Community activists also blasted Wells’ proposal to replace full-service bank branches with supermarket-based automated tellers or mini branches.

“There are no supermarkets in our neighborhoods, and these new mini branches cannot employ the number of people we find in full-service bank branches,” Salinas testified.

Wells has estimated that the merger would cost 7,000 to 8,000 jobs in California.

But Wells said it would not leave its inner-city customers in the lurch. Wells has also said that despite the branch closures, it will increase the total number of outlets, including supermarket-based mini branches, in California if the merger goes through.

“We’ve committed that we’re not going to close any branches in low-income communities unless there are viable, alternative delivery systems,” said Karen Wegmann, Wells’ executive vice president for corporate community development, in an interview outside the hearing.

As for a lack of supermarkets in some underserved neighborhoods, she said: “We’ll look at independent supermarkets, and other kinds of soft-goods retailers that have the right kind of traffic flow.”

Groups with existing commitments from First Interstate worried about the fate of those commitments under Wells.

Other, including Richard McNish of the Southern California Business Development Corp., a community development corporation, pointed out that Wells alone among the major regional banks had not provided financial support. First Interstate, on the other hand, is the SCBDC’s largest benefactor.

Wegmann said Wells would live up to First Interstate’s commitments if a merger goes through.

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You Can’t Fight the Tape

Analysts watching First Interstate Bancorp’s long struggle to resist a hostile takeover by Wells Fargo & Co. said the bank has all but thrown in the towel because it has become clear that the value of its proposed friendly merger with First Bank System Inc. could not overcome the Wells deal in the marketplace. A look at how the deals were valued in the market compared with First Interstate’s stock price:

Nov. 6: First Interstate agrees to $10.1-billion merger with First Bank.

Nov. 13: Wells raises its bid for First Interstate.

Jan. 15: The gap between the two deals hits a high of $19.36 a share.

Jan. 19: First Bank receives an adverse ruling from the SEC.

Value per share of Wells’ bid: $147.50

Value per share of First Bank’s bid: $143.75

First Interstate stock price: $130.00

FIGHT NEARLY OVER: Wells Fargo, its bid worth far more than First Bank System’s, is close to warping up a deal to acquire First Interstate Bancorp. A1