Company Law - An Antitrust Analysis of Bank Mergers In U.S.A.

THE REGULATORY PROCESS

The competitive consequences of any transactions are first assessed by the appropriate bank regulatory agency: for national banks--the OCC; for state member banks and holding company transactions--the Federal Reserve Board; and for nonmember insured banks--the FDIC. These respective agencies undertake to assess the competitive consequences of a transaction under their jurisdiction. However, before reaching a conclusion, these regulators will ask DOJ to provide them an independent antitrust evaluation of the transaction. Thus there are two federal antitrust reviews of any bank merger or acquisition: one by the appropriate bank regulatory agency and the other by DOJ.

Private parties, including the state attorneys general, may also bring suit challenging bank mergers. Only the federal government, however, is entitled to the automatic stay.

The Substantive Merger Standard

The Bank Merger Act prohibits mergers or acquisitions that "would result in a monopoly ... or whose effect ... may be to substantially ... lessen competition ..." This standard is identical to that applied to non-bank mergers under section 7 of the Clayton Act. Put differently: Will the merged entity (post-merger) be able to raise prices? Generally, only horizontal transactions--transactions between competitors--are likely to be subjected to an in-depth review on antitrust grounds.

Concentration is regarded as an important indicator of competitiveness within an industry. The more concentrated, the less competitive; the more atomistic, the more competitive. In order to measure concentration, it is necessary to define a relevant market. This has both a product and geographic component. Since 1982, the government has employed an economic construct called the Herfindahl-Hirschman Index (sometimes referred to as the "HHI") to measure concentration.

RECENT HISTORY

U.S. banks remain small compared to the international competition. Recently, of the 20 largest banking companies, ten were in Japan, four in France, two in Germany, one in the United Kingdom, one in Switzerland, one in the Netherlands, and one in the U.S. There are some 3000 financial institutions in the European Community and 150 in Japan. In the United States, there are still some 8,000 banking companies and 2,000 thrift institutions in addition to over 12,000 credit unions.

The process of bank consolidation in this country continues. Deregulation, competition, the desire to improve bank capital ratios, the S&L crisis, a growing perception that we have too many banks--all are contributing to this consolidation.

Calvani and Miller noted three significant changes in bank antitrust review. First, DOJ's approach to the definition of the relevant product market experienced dramatic change. Second, DOJ's mode of investigation became much more intrusive, costly and time-consuming. Third, the state attorneys general had become players in the antitrust analysis of bank mergers .

1. DOJ's Definition of the Relevant Product Market

In 1990, DOJ filed suit challenging the First Hawaiian/First Interstate Bank of Hawaii transaction after the merger had been approved by the Federal Reserve Board. In First Hawaiian, DOJ separately examined all of the products and services sold by banks. The case set the stage for dramatic changes in policy by applying a method of analysis quite different from that employed by the Federal Reserve Board. Indeed, DOJ appeared to depart from the traditional market definition of the "cluster of bank services" articulated by the Supreme Court in Philadelphia National Bank.

First Hawaiian was followed by the government's challenge to the Fleet/Norstar Financial Group transaction. Once again approval by the Federal Reserve Board was followed by opposition from DOJ. The "adverse competitive factors" letter filed by DOJ with the Federal Reserve Board in the Society/Ameritrust transaction confirmed that the rules had changed.

This approach to product market definition is consistent with the approach taken by DOJ and the Federal Trade Commission in their examination of other types of mergers. Indeed, it is the position employed in the Horizontal Merger Guidelines. Thus, for example, In re Owens Illinois (a merger between two competing glass companies), the FTC staff conceded that the transaction was not anticompetitive in an "all-glass container" market since any effort to increase price post-merger would cause buyers to use other packaging materials. However, they alleged that there were certain types of users for whom there were no other acceptable substitutes. Thus, glass jars used for packing prepared spaghetti sauces was alleged to be a separate market.

Applying that approach to the First Hawaiian transaction, DOJ isolated a market for commercial loans to small business and middle market as its object of concern. A similar approach was used in Fleet. And in Society/Ameritrust, DOJ again focused on small business loans, but with an even narrower focus specifying loans for working capital as an area of concern. Using this general approach, commercial loans to small business may be an object of concern. Cash management services may be another.

This method of defining the market has important ramifications for the geographic market component since the geographic market will vary, depending on our product market focus. The geographic market for loans to the "Fortune 500" may well be international, while the market for safety deposit boxes may be intensely local. Indeed, there may be a good many geographic markets for the same transaction.

2. Change on the Mode of Investigation

Traditionally, the appropriate bank regulator, e.g., the Federal Reserve Board, would notify DOJ of a pending transaction, and DOJ would then conduct its assessment largely on the basis of the bank regulatory application. That no longer reflects reality. Just as in other merger investigations, DOJ today can and does conduct its examination using compulsory process (demands for documents, interrogatories, depositions, and so on). Indeed, this discovery is even directed at third parties, e.g., bank customers.

None of this should come as a surprise, since the government will need access to a great deal of data in order to construct a market analysis for each of the markets it is likely to examine. This change in process is the logical outgrowth of the change in the method of analysis. Parties to bank mergers that involve horizontal overlaps--that is to say, mergers between banks that compete--should anticipate the possibility of a comprehensive investigation by DOJ.

During the early 1990s when DOJ was refining its Merger Guidelines approach to bank mergers, its discovery was very aggressive. Doubtless this was a function of its need to understand the financial services market. The earlier reliance on demand deposit data was acceptable using the "cluster of bank services" approach to market definition. It was of very limited utility under the new approach. As DOJ learned more about the industry and the limited availability of data, its approach to this problem matured. From the perspective of merging parties, it is more reasonable today.

3. The Advent of the State Attorneys General

The states did not play an active role in merger law enforcement until the 1980s. During the Reagan Administration, the trade association of the state attorneys general--the National Association of Attorneys General ("NAAG")--began to assert itself. With the Supreme Court's decision in the American Stores case, which held that the state attorneys general have standing to challenge mergers and acquisitions generally, it was only a matter of time before banking came under the watchful eye of the states. That time arrived when the Maine Attorney General intervened in the Key Bank transaction. Since then various attorneys general have intervened in several bank merger transactions.

Unfortunately, the states have their own merger guidelines, which are different from those employed by either DOJ or the bank regulators. This has been the source of additional confusion. Furthermore, the different standards do not produce similar results.

B. Further Developments in the Mid-1990s

The confusing and sometimes contradictory situation described by Calvani and Miller has matured in the past couple of years. While the bank regulatory agencies have not officially endorsed DOJ's segmented "Horizontal Merger Guidelines Approach" to market definition, it has captured the day. Moreover, by jointly adopting the Bank Merger Screening Guidelines, both DOJ and the regulatory agencies have adopted a method of approach that minimizes conflict. The centerpiece is the method of defining the relevant product market and measuring concentration.

1. The Bank Merger Screening Guidelines

One of the most significant recent developments in the antitrust analysis of bank mergers has been the joint adoption of the Bank Merger Screening Guidelines by DOJ, the Federal Reserve Board and the Office of the Comptroller of the Currency. For the first time, at least in theory and as an initial matter, all the responsible agencies "begin" their analysis by using the same guidelines. However, as noted by Assistant Attorney General Bingaman, the joint adoption of the Bank Merger Screening Guidelines did not produce "a single agency method of analysis." Rather, these Guidelines represent accommodation of each agency's own method of analysis as a legitimate, but not the only way to assess bank mergers. Nonetheless, the other differences--product market and geographic market definition, and inclusion of thrifts as market participants--have been more clearly articulated in the Bank Merger Screening Guidelines.

It could be argued that the Bank Merger Screening Guidelines represent the banking regulatory agencies' acquiescence in (or acknowledgement of) DOJ's mode of merger analysis. In the past, DOJ has challenged transactions, e.g., First Hawaiian, that have received regulatory approval. The joint adoption of the Bank Merger Screening Guidelines is an acknowledgment that differing modes of analysis are legitimate. Operationally, the Bank Merger Screening Guidelines significantly reduce the likelihood of divergent decisions by various agencies. Indeed, after the adoption of the Bank Merger Screening Guidelines, DOJ's Bingaman publicly stated that "the Federal Reserve now generally awaits the completion of [DOJ's] investigation before reaching its decisions," whereas in the past the Fed might have announced its formal decisions without waiting for DOJ's input.

The Bank Merger Screening Guidelines describe the overall bank merger review process employed by the banking agencies and DOJ. In Section 1, the Bank Merger Screening Guidelines describe the use of "quantitative" information and two separate screens, Screens A and B. In Section 2, the Guidelines list the types of "qualitative" information that may be relevant to the banking agencies and DOJ when the quantitative results from Screen A and/or B signal potential antitrust concerns.

Screen A embodies what has essentially been the Federal Reserve Board's mode of analysis. Merger applicants first list all the geographic overlaps using three separate geographic definitions: FRB market; RMA market; and county. Then, for each geographic overlap, the merger applicants must complete a Screen A HHI calculation chart. More importantly for purposes of completing Screen A charts, 50% of all thrifts' deposits is accounted for in calculating HHI's. At first blush, this could be viewed as a compromise by DOJ. However, in Screen B of the Joint Bank Merger Screening Guidelines, DOJ primarily focuses on the business of small/medium commercial lending, and initially attributes none of thrifts' deposits to the competitiveness of the marketplace. Thus, in reality, DOJ has not deviated from its previous focus on the lending to small to medium-sized businesses.

Screen B essentially represents DOJ's pre-Bank Merger Screening Guidelines period analysis that focused on the competitive effect on the market for small to medium commercial lending. Screen B excludes all thrifts from HHI calculation. Moreover, consistent with DOJ's pre-Banking Merger Screening Guidelines era practice, Screen B uses RMA and county, but not FRB markets, as two provisional geographic markets.

The bank regulatory agencies will use only Screen A. If the post-merger HHI is over 1800 and the increase is over 200, then the merging parties should be prepared to provide qualitative information listed in Section 2 of the Bank Merger Screening Guidelines.

DOJ uses both Screen A and Screen B. If the post-merger HHI and the increase in HHI under Screen A exceed 1800 and 200 respectively, then the merging banks need to complete Screen B. More importantly, even when the post-merger HHI and the change do not meet the 1800/200 threshold, for all practical purposes, the merging banks should have HHI figures under Screen B.

In practice, potential bank merger partners ought to complete both Screen A and Screen B, and may also have to provide "qualitative" information listed in Section 2. This is particularly so when the HHI numbers signal border line cases or when there are any area of banking services where the merging firms are especially close competitors.

Often times, low concentration figures under Screen B calculation will satisfy DOJ that there are no serious antitrust problems. However, even when the results of Screen A and Screen B HHI calculations do not indicate highly concentrated markets, DOJ may further investigate the proposed transaction. In particular, DOJ lists two categories of situations that warrant further investigation despite low HHI figures. First, DOJ will continue its investigation if the geographic market definition in a particular transaction is flawed. For example, if the merging banks are located in different, but adjacent counties, none of the three provisional geographic markets under Screen A may capture the existence of competition between the two banks. Second, DOJ's product market definition, albeit already narrower than the banking agencies' definition, may be too broad in some situations. For instance, DOJ will continue its investigation if it believes that the merging banks offer a specialized product and very few other banks also offer the same product.

When the bank regulatory agencies and/or DOJ do not close their respective investigation after assessing the quantitative factors (as suggested by the results of Screen A and/or Screen B), then they are likely to focus on qualitative factors such as those listed in Section 2 of the Bank Merger Screening Guidelines. These qualitative factors are similar to those factors that DOJ would normally look at under the DOJ/FTC Horizontal Merger Guidelines.

In addition, when Screen B signals a potentially anticompetitive bank merger with respect to the market for small/medium commercial lending, DOJ may also calculate HHI's using, instead of deposits, data from the relevant FDIC Reports of Condition on commercial and industrial (C&I) loans below $250,000, and also separately between $250,000 and $1,000,000. DOJ will also look at whether thrift institutions and/or credit unions constrain the merging banks' small/medium business lending business in a given geographic market .

2. Closer Cooperation between DOJ and State Attorneys General

Although there is still room for different conclusions between DOJ and a particular state attorney general, the past few years have seen closer cooperation between DOJ and state attorneys general. Assistant Attorney General Bingaman remarked that DOJ had established "a policy of cooperating with state antitrust officials in bank merger investigations in an effort to develop a consistent law enforcement approach to bank mergers." DOJ views its improved working relationship with the bank regulatory agencies as well as with the various state attorneys general as one of the most important achievements in DOJ's bank merger enforcement. Specifically, in recent years, DOJ conducted "joint" investigations with various state attorneys general, and negotiated divestitures with merging banks that satisfied both the federal and state agencies. In announcing negotiated divestitures, DOJ press releases make clear that the divestitures "exemplified the close cooperation between federal and state antitrust enforcement agencies which this administration has emphasized."

Whereas the adoption of Joint Bank Merger Screening Guidelines should significantly help coordinate concurrent (rather than joint) investigations by various federal agencies, the improved cooperation between DOJ and State Attorneys General is still much more fragile. As noted in Calvani & Miller, state attorneys general often have different incentives and interests, and may even have non-antitrust, non-banking agenda when they intervene.

3. Focus on Crafting Divestiture Packages

In the past few years, all potentially anticompetitive bank mergers have resulted in restructuring of the transactions with necessary divestitures. DOJ reports that the success of its bank merger enforcement program "is reflected in the fact that our goal of preventing anticompetitive mergers has been reached without litigation and without the need to use compulsory process to obtain information. Instead, we have been able to enter into constructive dialogue in the context of clearly articulated standards." In addition, rather than entering into separate consent agreements with DOJ that are subject to public comment and federal court approval for reasonableness, the merging banks in the recent transactions have restructured their transactions before the bank regulatory agency's formal approval. This is somewhat akin to DOJ's preference for the so-called "fix-it-first" approach to its general merger enforcement.

In other words, in recent years no merger party has challenged DOJ's product market definition or the method of measuring concentration. Rather, once DOJ (and other reviewing agencies) identified potential antitrust questions, the task was to negotiate a divestiture package. This is more understandable in the bank merger context than in other general mergers and acquisitions context. Because of the automatic stay of consummation, DOJ's formal challenge could practically derail the merger discussion. Moreover, as DOJ lets state attorneys general to become "partners" in their joint investigations, there is a real possibility that the merging banks would have to fend off simultaneous and formidable challenges by DOJ and state attorneys general should the merging banks adopt a hard line strategy.

Thus, there has been a heavy emphasis on devising acceptable divestiture packages. Indeed, DOJ "unabashedly" states in the Introduction and Overview Section of the Bank Merger Screening Guidelines that: "Where a proposed merger causes a significant anticompetitive problem, it is often possible to resolve the problem by agreeing to make an appropriate divestiture." Interestingly, the 1992 DOJ/FTC Horizontal Merger Guidelines do not contain such a statement. Perhaps because DOJ almost exclusively focuses its attention on a very local aspect of the banking business, i.e., commercial lending to small/medium businesses, divestiture of overlapping branches may solve local geographic market problems more easily in the bank merger context than in other general merger contexts.

In devising an appropriate divestiture package, DOJ "will look beyond the amount of assets to be divested to the quality and location of the branches that are included in the divestiture package. DOJ also considers "the viability and overall effectiveness of branch networks proposed for divestiture in a market."

This focus on divestitures presents an opportunity for federal-state conflict. State attorneys general often pursue populist objectives alien to modern antitrust. It remains to be seen how DOJ and state attorneys general will resolve their philosophical differences in the future "joint" investigations. Thus, inclusion of the state authorities in the process probably reduces the tendency for divergent outcomes.

Case Studies

• Corestates/First Union

The first of the mega-mergers I am going to talk about was actually announced in late 1997, but was approved almost one year ago exactly. First Union announced plans to acquire Corestates. The competitive overlaps in this transaction were mainly in eastern Pennsylvania and New Jersey.

As you know, the FRB and Justice in their analysis use different product markets and this played a significant role in this matter. The FRB views banking as a cluster product market. Justice follows the DOJ-FTC Merger Guidelines and defines markets based on consumer demand. We view banks as multi-product firms with different products that consumers do not find to be good substitutes for one another we view small business and middle market lending as relevant product markets. This difference has ramifications for geographic market definition. In Philadelphia, the FRB geographic market definition encompassed five counties in Pennsylvania and four counties in New Jersey. This was somewhat broader that the geographic market used in United States v. Philadelphia National Bank, 374 U.S. 321 (1963). (Parenthetically, the Court used a four-county market which included Philadelphia and its three contiguous counties, Bucks, Montgomery, and Delaware. One of the reasons for the four-county geographic definition was that banks at that time were allowed to branch only within those contiguous counties. The branching laws have since changed, and banks in Philadelphia are now permitted to branch beyond the four-county area.)

When looking specifically at small business lending, however, the broad market did not match what we were hearing in our interviews or in the CRA data that was available. It appeared that New Jersey banks made few loans into Philadelphia. On the Pennsylvania side of the Delaware, many suburban banks had no branches in the City and did not lend to small businesses in Philadelphia. In fact, several banks told us that they avoided branching into and lending in the city at least in part because of CRA related issues. CRA data corroborated that suburban banks were making few loans into the City. We ended up believing that the transaction created a competitive problem was Philadelphia and close in Delaware county.

The best proxy we had for that area was the entire 2 county area, and in it, the post-merger HHI was about 2500 and the change was about 450. For C&I loans over $100,000, the post- merger HHI was 2208 with a change of 650. The comparable deposit HHI for a broader five county area was 1999 with a change of about 400. In this case, we negotiated a significant divestiture of 32 branches and $1.1 billion in deposits. The divestiture package was sold to Sovereign Bancorp, an in-market thrift that had recently made several purchases of commercial banking operations and was an active small and middle market lender.

Washington Mutual/Home Savings (H.F. Ahmanson)

The second large merger that I want to cover is the acquisition by Washington Mutual of Home Savings (H.F. Ahmanson), announced in March 1998, just about the time we were finishing CoreStates/First Union. This was a $10 billion stock swap that combined the nation's two largest thrifts. This was a deal that had no small business lending or middle market lending issues because Washington Mutual was not a commercial lender in any of the markets that exceeded our screening guidelines. I'll use it however to make the point that we do investigate mergers that have their primary impact in retail banking markets and in small geographic markets. Our screening showed that the merger exceeded guidelines in three fairly rural California FRB markets (Lancaster, Yuba City and Los Banos) markets. Our initial HHI in Lancaster based on commercial bank and thrift deposits was 2478, a change of 784. Our investigation showed that retail customers had additional alternatives. The market had five credit unions and that when their deposits were considered, the post-merger HHI was 1895 with a change of 576. In this case the HHI was slightly over our screening guidelines but the change in market structure was significant. Rather than insist on a divestiture, we asked for alternative relief that would make entry quicker and less costly than building a de novo branch. We were hearing from market interviews in the three markets was that the merging parties had been on an acquisition spree over the past few years, and had tied up much of the prime real estate for branch locations. In response to our concerns, the parties agreed for a period of three years to not impose any conditions that would preclude the future use by a FDIC insured institution of any of Washington Mutual or Home Savings branch offices in California that Washington Mutual closed and thereafter leased or sold as a result of this transaction. In addition, Washington Mutual also agreed to suspend the operation of any existing non-compete agreements and to not enter into any new non-compete agreements with any current loan officer or branch manager of Home Savings in California who would become an employee of Washington Mutual as a result of this transaction. This relief recognizes that the branch manager and loan officer are critical in small business and retail lending and that tying up good branch managers or loan officers with non-compete agreements can be detrimental to a new entrant's ability to attract or retain customers.

These conditions are a normal piece of any negotiated divestiture package and are also increasingly being used to resolve competitive concerns that do not rise to the level of requiring a divestiture.

Citicorp/Travelers

June used to be the busiest month for weddings but that month was April in 1998. Not only did we witness some marriages among the country's biggest banks but we also witnessed the marriage of a bank and an insurance company. A year ago yesterday, the $70 billion merger of Citicorp and Travelers was announced.

The Citicorp/Travelers transaction was reviewed by our bank merger unit although depending on the competitive concern, one of these mixed weddings might be reviewed in the Computers and Finance section. Since Travelers did not control a commercial banking subsidiary, this transaction did not result in the elimination of bank competition in any local banking market. We ended up looking at a wide range of corporate and retail overlaps, ranging from investment banking debt underwriting, equity underwriting and advisory services to credit card processing, annuities and mutual funds. As you can guess, we found that while there were several overlaps, that the markets with some exceptions appeared to be national markets with numerous competitors. The overlaps did not raise significant antitrust concerns, either from a horizontal or vertical integration perspective.

Generally, the vertical issue we reviewed was whether the combined firm could use any dominance in any market to eliminate competition in any otherwise competitive market. We didn't find any market sufficiently concentrated to give rise to a serious concern, however . We heard numerous complaints that Citigroup would have an undue aggregation of resources--that the deal would creates a firm too big to be allowed to fail. But, we essentially viewed this as primarily a regulatory issue to be considered by the FRB.

NationsBank/Bank of America

Also in April, shortly after Citicorp/Travelers Group was announced, NationsBank and Bank of America announced plans to merge. The deal, valued at about $60 billion when announced, formed the largest bank in the United States, holding about eight percent of all bank deposits nationwide. The new BankAmerica would have operations in about 21 states and the District of Columbia.3 The bank was a classic market extension merger since NationsBank's operations focused generally on the east coast and south and Bank of America was largely on the west coast. Despite the size of the transaction, it raised competitive issues in only two states-- New Mexico and Texas.

Our investigation focused on the effect the merger would have on small and medium sized businesses in Albequerque and Dallas. We concluded that divestiture was only necessary in New Mexico. In Dallas, the post merger HHI was around 1950 and we found that Bank of America was a non-factor in small business lending, having entered Dallas through the purchase of failed thrifts and never really created a commerical franchise--we sought no divestiture. In Albequerque, the HHI increased by about 680 to over 2900. The divestiture, primarily in the Albuquerque market , was of 17 Bank of America branches, plus associated deposits and loans. What was noteworthy, however, was that our investigation focused also on middle market lending. We found that there was a very limited number of middle market players in New Mexico. This concern was met when the parties divested not only deposits, loans and branches but what ultimately was Bank of America's entire middle market operations in New Mexico.

Banc One/First Chicago

Also in April 1998, Banc One announced plans to acquire First Chicago NBD Corporation. The merger, valued at about $29 billion, was to create the fifth largest bank holding company with total assets of $231.7 billion.5 The combined firm also became the second largest credit card issuer in the country. In this case, we not only looked at issues in small and middle market business lending but also at what effect, if any, this transaction would have in credit cards isssuing and processing, as well as ATM networks. Neither credit card issuing nor processing exceeded the screening guidelines and thus did not raise competitive concern although credit card processing, without even considering the issues of submarkets, is rapidly concentrating levels that will attract our attention. (HHI is about 1500 but change from transaction was very small).6

In addition to a small business problem, we believed there could be a middle market problem particularly at the lower-end, involving loans ranging up to $3-$5 million. In Indianapolis, there are about 40 or so banks and thrifts, although few were engaged in middle market lending. The post-merger structure absent divestiture would have had a single dominant bank with about a 57% market share and almost 200 branches. The next largest bank had about 7% market share and 39 branches. Although several of the banks in the second-tier where relatively large regional banks such as Keycorp, Huntington, and Fifth Third Bank, market shares were very small and these banks had relatively few branches by comparison. To address these concerns, the parties divested 25 branches in Indianapolis with deposits of about $900.5 million plus one of its middle market lending groups to a large regional bank, Union Planters.7 The final DOJ divestiture package included 39 branches in Indiana with total deposits of $1.467 billion.

Norwest/Wells Fargo

The last in the line of big bank deals we reviewed last year was the merger of Norwest/Wells Fargo. This deal was valued at about $34 billion when announced in early June 1998. Although the operations of Norwest and Wells Fargo did overlap a bit more, Norwest's operations were primarily in the Midwest and southwestern United States and Wells Fargo8 had its operations primarily in the western and southwestern United States. Competitive isues arose in only two states--Nevada and Arizona.

The parties agreed to divest 26 branches (14 in Arizona markets and 12 in Nevada markets), in 14 FRB markets with deposits totaling approximately $1.18 billion. The investigation concluded that the competitive effects of this merger were limited to small business lending. Norwest was a relatively new entrant in Nevada and entered by thrift acquisition. In Arizona, Norwest was more active in middle market lending but was still considered a minor player. Wells Fargo ranked higher in middle market lending but the combination of Norwest and Wells Fargo did not appear to result in significant concentration. Additionally, middle market businesses in Arizona tended to be smaller in revenue size (about $10) than in other markets and generally had credit needs around $1 million. These customers could be served by the Bank One and Bank of America, in addition to a number of the second tier players and the large fringe of smaller institutions competing in Arizona markets. The investigation into small business proceeded along normal lines without remarkable issues.

The name of the resulting institution came into play in determining which branches to accept for divestiture. Since Norwest could assure us early on that Wells Fargo would be the name of the surviving bank, we were confident that we were taking the branches of the customers in play. That contrasted to NationsBank/Bank of America where uncertainty over the bank name led to larger divestiture than was originally agreed. Although there can be equitable reasons in some markets to accept for divestiture the branch of the acquiring/surviving bank, normally we will insist on branches of the acquired or target bank to avoid significant run-off .

CONCLUSION

The recent years have seen the joint adoption of the Bank Merger Screening Guidelines and closer cooperation between DOJ and state attorneys general. Therefore, merging banks are unlikely to find a situation where one agency objects to a proposed bank merger transaction after other agencies have formally approved the transaction. To the extent the proposed transaction has significant antitrust issues, the merging banks will have to address all the interested agencies' concerns simultaneously. Short of risking a formal challenge, and undoubtedly lengthy proceedings, in federal court, the merging banks will have to agree to a divestiture package that satisfies all the interested parties.

The next few years will likely force the agencies--bank regulatory agencies, DOJ, and state attorneys general alike--to address the unresolved questions. Particularly in light of the changing regulatory environment, further development of electronic banking, and increasingly global marketplace, the banking industry will certainly face new questions, and so will the agencies' antitrust analysis of "bank" mergers.

There will be substantial consolidation in the financial services industry in the coming years. More bank mergers will be reviewed. These mergers will present new and old but unresolved questions. It remains to be seen how the reviewing agencies will continue to coordinate their merger enforcement in the new environment from a procedural point of view, and more importantly, come to resolve substantive questions such as proper product and geographic market definition and measurement of concentration.