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First Interstate Bancorp is one of the largest bank holding companies in the United States. The company's 55 banks collectively operate 1,033 branches in 13 states, giving it the widest geographical coverage of any banking company in the country. First Interstate is a familiar name to literally millions of Americans who bank there. In the 1980s, the company took advantage of banking deregulation to enter a variety of financial services, including discount securities broking, venture capital activities, and mortgage banking.
First Interstate's history parallels the evolution of banking in the United States. Its major restructurings have usually gone hand in hand with governmental restrictions or critical trends in the banking industry. The company known as First Interstate today was once the Western Bancorporation, and before that the Firstamerica Bancorporation, but its roots go deeper still. Firstamerica was a spinoff of the banking interests of the Transamerica Corporation. Transamerica's origins can be traced to 1904, when A.P. Giannini opened the Bank of Italy in San Francisco with $150,000.
Giannini was a unique figure in the history of American banking. Born in San Jose, California in 1870, Giannini spent much of his youth traveling around the state as a produce buyer for his step-father's distributing firm. Giannini's extensive contact with small merchants drew his attention to the need these businessmen had for financing. Banking at that time was primarily a service for big business. Giannini decided to pursue the business of these "little people," a strategy that paid off handsomely. By 1909, Giannini's Bank of Italy had more than $2.5 million at its disposal.
Giannini remained an outsider from the traditional American banking establishment. The financier's somewhat unorthodox methods were viewed as a threat by many established bankers of the day. As a result, when Giannini went to New York to expand his empire into the nation's financial center, he found a number of obstacles placed in his way. In 1918, Giannini and a group of Italian investors pooled $1.5 million to establish the BancItaly Corporation in New York City. Over the next nine years, BancItaly acquired five New York banks, including one called Bank of America. When Giannini tried to consolidate his BancItaly holdings under the Bank of America charter, the Federal Reserve Bank of New York unexpectedly denied his petition unless he and his associates agreed to divest certain holdings within six months. It was the first time the Federal Reserve had placed such a stipulation on any national bank with a clean bill of health. Although it was never proven, suspicion arose that the move was engineered by the powerful eastern banking establishment. Giannini was forced to agree to the conditions imposed by the Federal Reserve: to back out of the consolidation at the eleventh hour might have shaken public confidence in the bank.
In 1928, soon after the Federal Reserve's orders were carried out, Bank of Italy and BancItaly stocks were dumped on Wall Street by Giannini's banking rivals in order to lower the value of the Californian's banks. Giannini organized a holding company, the Transamerica Corporation, to prevent further manipulation of the stocks' prices. Shares in the new company were issued in exchange for Bank of Italy and BancItaly Corporation shares. The new company engaged in both banking and non-banking activities to spread out risk. With $1.1 billion in assets, Transamerica was a major force in banking from the day it began business.
Transamerica set out to build a national banking system. In 1930, Transamerica merged the Bank of America of California and the Bank of Italy, creating the Bank of America National Trust and Savings Association. This new hybrid, with assets of $1 billion, was the fourth largest bank in the country.
Transamerica began to acquire the banks that would eventually form the core of the First Interstate Bancorporation as early as 1930. During the following decade, Transamerica acquired a number of banks and other financial corporations throughout the western United States. By the end of the decade the company had banks in California, Nevada, Oregon, Washington, and Arizona, as well as New York. Giannini's goal was to unite all of the banks under one umbrella, thereby creating a truly national branch banking system as soon as federal regulations would allow it. The Depression, however, brought more stringent banking regulations as the nation's banks were reorganized during Franklin Roosevelt's "bank holiday." Nonetheless, Transamerica continued its banking operations throughout the 1930s and at the same time expanded its nonbanking activities.
In 1937, Transamerica divested a majority of its shares in the Bank of America. The company continued to hold its other banks, and added considerably to its bank holdings throughout the next decade. In 1948, the Federal Reserve filed a suit against Transamerica charging that the company's interstate banking affiliations constituted a potential monopoly. The case was resolved in 1953, when a U.S. Court of Appeals ruled that Transamerica's holdings did not consitute a monopoly.
A. P. Giannini died in 1949 and was succeeded as Transamerica chairman by Frank N. Belgrano, who continued Giannini's policies of growth. Transamerica had steadily invested in various insurance companies since the 1930s, and by 1950, the company was aimed more in that direction than in the direction of interstate banking. Belgrano, however, refreshed Transamerica's bank acquisition policies. In the next several years, Belgrano took Transamerica on an acquisition spree; by the mid-1950s, the company had significant new holdings in Colorado, Idaho, Montana, New Mexico, Utah, and Wyoming.
The Bank Holding Company Act of 1956 placed new restrictions on companies like Transamerica. As a result of this legislation, Belgrano separated Transamerica's banking from its non-banking holdings. Transamerica pursued its insurance and other operations while ownership of 23 of Transmamerica's banks in 11 western states were transferred to the new Firstamerica Corporation. All of Firstamerica's shares were distributed to Transamerica shareholders in equal proportion to their Transamerica holdings. By 1959 the two organizations were completely separate.
In 1959, Frank King joined Firstamerica with the acquisition of the California Bank. King became chairman of Firstamerica, guiding its growth for the next ten years. In 1961, Firstamerica changed its name to Western Bancorporation. Under King's direction the company expanded steadily throughout the 1960s, both domestically and overseas. The United California Bank, which had been formed when the California Bank and the First Western Bank and Trust Company merged in 1961, was the jewel in Western's crown at this time. By the end of the decade, Western Bancorporation had assets of more than $10 billion.
In 1972, Frank King retired and Clifford Tweter became chairman of Western's board of directors. At the same time Ralph J. Voss became the company's president. These two engineered further expansion of the holding company's financial services network. The Western Bancorporation Mortgage Company was founded in 1974. A year later, Western Bancorporation Data Processing Company was launched to tackle some of the problems related to the explosive growth of Western's banking operations. In order to improve up-to-the-minute information on Western's millions of customer accounts, the data processing company developed the Teller Item Processing Systems (TIPS). By 1985, this system was processing 750,000 transactions per day.
In 1978, United California Bank's president, Joseph J. Pinola, joined Western Bancorporation as chairman and CEO. He inherited a decentralized collection of banks, many of which had their own operating procedures and marketing strategies. Pinola centralized Western's strategic planning, but left day-to-day decisions in the hands of the individual banks. In 1979, the Western Bancorp Venture Capital Company was formed, further diversifying the financial operations of Western Bancorporation.
In June of 1981, the company changed its name to First Interstate Bancorp. About 900 banking offices throughout 11 states, as well as 40 overseas offices, now identified themselves as First Interstate banks. The move was designed to promote greater public recognition and internal consistency.
The 1980s were a time of rapid change in the banking industry. First Interstate Bancorp introduced the nation's first bank franchise program. Franchisees were entitled to use the First Interstate name, advertising, computer services, and other common products while maintaining local control over operations. At the same time the company continued its strategy of growth by acquisition. In 1983, it acquired IntraWest Bank of Denver, which was merged into the First Interstate Bank of Colorado, making it the state's largest, with assets in excess of $2.4 billion.
First Interstate jumped into new financial services as soon as the banking deregulation measures of the 1980s allowed. In 1982, the bank participated with 12 other banks in the creation of the Cirrus automated teller machine (ATM) network. In 1983, the First Interstate Discount Brokerage was set up to provide bank customers with securities and commodities support. Spoor Behrins Campbell and Young, a financial planning company, was also acquired in 1983.
In 1984, First Interstate branched into merchant banking with the purchase of Continental Illinois Ltd.; equipment leasing with the acquisition of the Commercial Alliance Corporation of New York; and broadened its mortgage banking activities by acquiring the Republic Realty Mortgage Corporation. In January, 1985 First Interstate's flagship, the First Interstate Bank of California, split its operations into two separate units. First Interstate Bank of California served individuals and small- and medium-sized businesses, while a new bank, First Interstate Bank Ltd., provided banking services to large corporate customers.
The bank failures of the mid-1980s gave First Interstate the opportunity to acquire a number of banks in need of repair. In 1986 it bought the First National Bank and Trust of Oklahoma City, which had failed because of an unexpected downturn in the energy and real estate industries, and reopened it under the First Interstate name. The company acquired failed banks in three other states as well.
In 1986 and 1987, First Interstate Bancorp made a bold attempt to take over the ailing Bank of America. Bank of America's heavy exposure to Third World debt and to the troubled energy and real estate industries in the U.S. had taken a heavy toll; the bank lost $1.8 billion between 1985 and 1988. Nevertheless, Bank of America fought First Interstate's takeover bid with determination and was ultimately successful.
First Interstate soon had its hands full with its own problems. In 1987, First Interstate Bank of Texas encountered serious problems with bad debt. This subsidiary bank, like many others, had loaned heavily to the energy and real estate industries, and was unprepared for the sudden downturn. The situation in Texas prompted First Interstate chairman Joe Pinola to take a closer look at his company's operations. He responded by trimming 8% of the workforce and seeking buyers for unprofitable subsidiaries, among them First Interstate's mortgage banking unit.
In 1988, First Interstate recorded substantial losses. In the last two years of the decade, the company focused on rebuilding and rejuvenating its existing operations rather than on acquiring new ones. Continued deregulation of financial service markets will provide new opportunities for First Interstate Bancorp, and the company that was transformed along with the banking industry will undoubtedly continue to adapt to change.
Principal Subsidiaries: First Interstate Bancard Co., N.A.; First Interstate Bank of Arizona; First Interstate Bank of California; First Interstate Bank International; First Interstate Bank of Denver; First Interstate Bank, Ltd.; First Interstate Bank of Nevada, N.A.; First Interstate Bank of Oklahoma, N.A.; First Interstate Bank of Oregon, N.A.; First Interstate Bank of Utah, N.A.; First Interstate Bank of Washington, N.A.; First Interstate Bancard Co.; First Interstate Discount Brokerage Co.; First Interstate Life Insurance Co..
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