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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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