B of A Merger May Redefine Debate on Antitrust Issues : NEWS ANALYSIS

In seeking federal approval to buy Security Pacific Corp., BankAmerica Corp. may help redefine the debate over antitrust issues in the banking industry.

The huge merger bid, a stock swap valued at more than $4 billion, may force regulators to recognize the growing threat of non-bank competitors, and not just focus primarily on combined banks’ market share within their industry. Already, federal policy makers are reviewing whether they focus antitrust concerns too narrowly on such issues as the percentage of deposits controlled after a merger and the concentration of lending activity to small businesses.

Instead, banking experts see a growing move to broadly define antitrust issues to reflect the aggressive invasion by industrial and service companies into banking areas. Indeed, a Justice Department task force is now reviewing the issue.

“Obviously, over the last 10 years there have been changes in the banking environment. Our effort is to make sure we understand fully how those changes affect the competitive analysis,� said Charles James, U.S. deputy attorney general for antitrust.

Within the past 10 years, banks have faced an onslaught from non-bank firms seeking a piece of their traditional lines of business.

American Telephone & Telegraph has issued more than 10 million credit cards in the most successful such introduction ever. Money market mutual funds attract billions of dollars that otherwise might be bank deposits. And California’s largest home lenders include affiliates of Weyerhaeuser, Sears, Roebuck & Co., General Motors and Prudential Insurance.

“If you are merging two grocery store chains, you might look at drugstores. They might sell milk and bread, but they are not really competitors. With banks, there are a whole range of competitors,� said H. Rodgin Cohen, a banking lawyer with Sullivan & Cromwell in New York who frequently represents banks in mergers.

Neither BankAmerica nor Security Pacific expects significant antitrust problems. One reason is the growing recognition in Washington that banks face such diverse competition, BankAmerica Chief Executive Richard M. Rosenberg said as the banks announced the deal.

Still, a number of banking experts believe that the BankAmerica-Security Pacific deal will get close scrutiny by antitrust officials, especially in Washington state. BankAmerica and Security Pacific already have the two largest banks there. The combined bank would control at least one-fourth of the deposits in most areas of the state and more than half in some areas.

One possible scenario bank experts see is the sale of some branches to satisfy those concerns. Political pressures within the state may put additional impetus to divest some offices. Still, no one expects antitrust challenges so strong as to threaten the entire deal.

In recent years, the Federal Reserve Board has looked much more favorably on banking mergers, although it has required branch sales first. Fed Vice Chairman David Mullins is one of the strongest proponents of viewing mergers in a broader context.

The Justice Department has been more difficult to predict. Starting with a mathematical formula developed to measure concentration in the steel industry in the 1950s, the department analyzes the competitive impact of mergers. In the past two years, it has opposed various aspects of mergers in Minnesota, Hawaii and New England, raising fears among some that it will be more strict in approving bank mergers.

“The Federal Reserve has become increasingly aware of the trend and has been willing to focus on the non-bank competition. The real issue today is the Justice Department,� Cohen said.