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For week ended March 12, 2000 Posted 24 Feb 2001
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Sent on Mormon-News: 07Mar00

Summarized by Kent Larsen

First Security, Zions taking heat
Deseret News 6Mar00 B4
By Max Knudson: Deseret News business editor

SALT LAKE CITY, UTAH -- The planned merger of mormon banks First Security Corp. and Zions Bancorp. drew heavy criticism on Friday after First Security announced that its first quarter results would fall short of expectations. The problem results may have breathed new life into a federal lawsuit challenging the deal.

The news mad page 1 of the industry newspaper American Banker and lead to sharp declines in the stock of both banks as investors and critics dumped shares. First Security's share price plunged 38 percent on Friday and Zions lost 24.5 percent. While both stocks have improved somewhat thismorning, neither is likely to recover a significant amount of the loss.

During a hastily-called national conference the banks held on Friday with investors and analysts, First Security announced that its results for the first quarter could be as much as 27 percent below fourth quarter 1999's earnings. In the conference, Zions CFO Dale Gibbons and First Security CFO Brad Hardy tried to reassure analysts, saying that the results were a momentary setback. However, the conference call didn't go well, as analysts didn't buy their explanations.

"This is an example of how not to do a conference call," said Michael S. Mayo, an analyst at Credit Suisse First Boston. He says chief executives Harris H. Simmons of Zions and Spencer F. Eccles of First Security should have personally conducted the conference call. "When it comes to something like this, the CEO should deliver the bad news, instead of the underlings facing the firing squad," Mayo told American Banker. The Deseret News reports that the two CEOs were actually listening to the call with their legal counsel, who advised them to to say anything because the merger is currently in the proxy period, when the banks must be careful about their statements.

The merger is to be voted on by shareholders on March 22nd. The CEOs say that nothing in the merger has changed, that it still makes sense, "The piranhas are on the hunt, but we're still the same folks we always were," Eccles said. "Everything was in place for this merger of equals to take place on Dec. 28 , but after it was delayed it has made it that much harder for us to manage our people."

The merger is also threatened by a coalition of Utahns who claim that the merger will limit competition in southern Utah. The coalition is asking Judge Richard Puglisi for a summary judgement to kill the merger, or for a trial prior to the March 22nd vote and deal closing. Coalition attorney George M. Allen says he is confident they will win because the defense is based ""solely on the professional opinion of Brigham Young University economist (and LDS Church member) James Kearl, (which states that) cost efficiencies and increased profits resulting from the merger will be passed on to banking consumers." Allen says that Kearl's analysis suffers from the fact, which Kearl admits in his own writings, that "it has not been accepted by the courts in antitrust litigation." He says that the results make it "now essentially impossible to rely on cost and profit projections made by Zions and First Security in the summer of 1999." And if the court can't rely on the projections, then it may rule that consumers will get no benefit from the merger.

The banks refused to comment on the lawsuit, but did say that they didn't expect any legal problem to prevent the merger from being completed.


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