First Interstate: A Bank To Watch

Speculating on takeovers of troubled banks is a dangerous game. If you're wrong, you're stuck with a sick bank. But here's one low-priced bet that some pros say has a potentially high reward: the Class A shares of First Interstate Bancorp. There are some 43 million of them, trading on the Big Board at 9/16, or 56~ a share. They shouldn't be confused with Interstate's common stock, now trading at 28. What the pros are buying are the Class A shares. In a takeover, they could fetch about 10 times the current price.

Here's how: The Class A shares were issued by Interstate in its 1988 acquisition of Houston's Allied Bancshares. According to the terms of that deal, if First Interstate is taken over, the acquirer would have to pay $6 a share for the A stock. But to hit the jackpot, First Interstate would have to be taken over within 17 months. That's because the shares convert into common in January, 1993--using a conversion formula that, given the Texas subsidiary's poor results, would likely render them worthless.

Interstate has repeatedly insisted on independence. But if the recent mergers turn into a stampede, Interstate may have to give in. It doesn't have many friends, especially after posting a $1.43-per-share second-quarter loss and slashing the quarterly dividend to 30~ a share from 75~.

BankAmerica, which is on the prowl for acquisitions, is an often-mentioned suitor. In a recent conference call with analysts, BankAmerica execs said they hoped that the Chemical-Manny Hanny match-up would change the mind-set of managements still resisting mergers. Some pros took that as a veiled message to Interstate's management.

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