First Bank System Inc. plans to buy U.S. Bancorp in a $9 billion deal that will create the nation’s 14th-largest bank with branches in 17 Midwestern and Western states.
The new company, to be called U.S. Bancorp, will be based in First Bank’s home town of Minneapolis. U.S. Bancorp’s headquarters is in Portland.
It will have assets of $70 billion and customers stretching from Minnesota to California, including almost 4 million households and 475,000 businesses.
The combined bank expects to eliminate 4,000 jobs as a result of the merger, with an anticipated cut in operating costs of 14 percent.
Thursday’s announcement comes as banks engage in a new wave of mergers aimed at adding customers while cutting costs.
First Bank has been in the market for a West Coast bank before. Last year, it lost a high-stakes buyout auction for Los Angeles-based First Interstate to hostile bidder Wells Fargo & Co.
U.S. Bancorp had been facing increasing pressure to find a friendly merger partner because rivals, including Washington Mutual, were growing larger and could offer services at lower cost.
Seattle-based Washington Mutual is locked in a high-stakes battle for Great Western Financial with A.H. Ahmanson. Great Western and Ahmanson are major Los Angeles-area savings and loans.
“This deal will help First Bank,” said Jim Bradshaw, an analyst with Pacific Crest Securities. “They have a great franchise, and this will allow them to expand to the West Coast.”
U.S. Bancorp spokeswoman Mary Ruble said the location of planned job cuts hasn’t been made public. U.S. Bancorp employees were surprised to learn of the acquisition. An announcement was posted Thursday on the corporate computer bulletin board.
Steve Matsko, head of U.S. Bank’s Spokane-area operations, said the transaction should have little local impact on employees or branches.
Customers will see the same signs and people, he said, but they will enjoy a greater variety of services and products.
Also, Matsko said, the two banks, by combining, will have more longterm financial strength than they would as stand-alone institutions.
“This is a powerful combination,” he said.
Phyllis Campbell, president of U.S. Bank of Washington, said she expects First Bank to draw on U.S. Bank’s expertise in agricultural lending.
First Bank is an active farm lender, she said, but is not as dominant in its territory as is U.S. Bank.
Campbell said she was unfamiliar with First Bank’s student loan program, but said the merger would likely lead to expansion of the U.S. Bank operation based in Spokane.
Under terms of the merger agreement, U.S. Bancorp shareholders will get 0.755 share of First Bank stock for each U.S. Bancorp share they own. At Wednesday’s market close, the deal was worth $59.08 a share, 22 percent above U.S. Bancorp’s closing price Wednesday.
At the close of trading Thursday, U.S. Bancorp stock was up $6.88 to $55.13 per share in Nasdaq trading. First Bank System shares were off $2.75 at $75.50 per share on the New York Stock Exchange.
The deal is subject to regulatory and shareholder approval and is expected to close before October.
John F. Grundhofer, chairman and chief executive of First Bank, will be president and chief executive of the new company. U.S. Bancorp chairman and chief executive Gerry B. Cameron will serve as chairman until his retirement in 1998.
Jim Bellessa Jr., an analyst at D.A. Davidson & Co. in Great Falls, Mont., said Grundhofer put a wavering First Bank back on its feet.
The bank has also pursued a number of small mergers, closing 24 in the six years Grundhofer has been in charge.
Bellessa said a major deal was necessary to expand First Bank’s geographic footprint.
Although not national, U.S. Bancorp could become a good brand name if additional mergers take the bank into more states.
First Bank System has $36.5 billion in assets with 374 offices in 11 Midwestern and Plains states. U.S. Bancorp, founded in 1891 as U.S. National Bank in Portland, has $33.3 billion in assets and 636 U.S. Bank branches in Oregon, Washington, Nevada, Utah, Idaho and Northern California.
U.S. Bancorp was primarily an Oregon-based institution until 1987, when it purchased Old National Bancorporation of Spokane and Peoples Bancorporation of Seattle to create U.S. Bank of Washington.
Subsequent deals pushed its territory south and east.
Gary Duim, a former executive with ONB, will be vice chairman of the newly combined banks following the merger.
, DataTimes ILLUSTRATION: Photo; Graphic: The new U.S. Bancorp
Subscribe to the Morning Review newsletter
Get the day’s top headlines delivered to your inbox every morning by subscribing to our newsletter.