Minnesota's Institutions Seeking New Identities in Deregulated World; Banks and Thrifts Change Names, Images, Products, and Businesses

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ST. PAUL -- Deregulation is causing an identity crisis for Minnesota's financial institutions.

While deregulation has given remarkable new powers to banks and thrifts, it has also left them facing increased competition, especially from nonbanks such as Sears, Roebuck and Co. and Merrill Lynch & Co.

Now traditional financial institutions are trying to chart their futures. And in Minnesota, as elsewhere, they have changed their images, names, products, and businesses.

"We've done a lot of soul-searching about what our mission is all about," said Joseph Kingman, president of American National Bank of St. Paul.

Deregulation so far has removed interest rate ceilings on deposits and given new powers to beleaguered thrifts. And more changes may be coming. New proposals would allow interstate banking, insurance powers, and new securities powers for banks -- such as underwriting municipal bonds and mutual funds.

But just as deregulation has slowed on the federal level, so it has slowed in Minnesota -- much to the relief of many traditional bankers. Holding Companies on Different Paths

A controversial banking bill proposed last year by the Democratic governor, Rudy Perpich, would have given banks expanded securities and insurace powers, lifted usury ceilings, and allowed interstate banking. But it was substantially scaled back for the current legislative term. And even then it was defeated. Neighboring states, such as Wisonsin and Iowa, also rejected similar proposals.

Perhaps most interesting to watch during this era of deregulation have been the two bank holding company giants, the $19.9 billion asset Norwest Corp. and the $20.8 billion-asset First Bank Systems, both based in Minneapolis.

The two companies have taken divergent paths. Norwest is emphasizing diversification and now bills itself as a financial services firm rather than a bank holding company. First Bank Systems is concentrating on its commercial bank operations and is bent on strengthening itself through consolidation and expansion.

Although deregulation did not cause this divergence, it certainly prompted the companies to recast their strategies. At Norwest, Specialization

One of Norwest's aims is to develop specialized financial groups, such as Norwest Financial (a consumer lending subsidiary formerly called Dial Finance), according to Norwest chairman John Morrison. Other specialized subsidiaries include its venture capital arm, Norwest Venture, and its mortgage banking unit, Norwest Mortgage.

These companies are doing an increasingly important and larger percentage of Norwest's business.

Through diversification, Norwest hopes to have a flexible and balanced position in the financial services market. In certain instances, the diverse businesses complement each other.

Take Norwest Banks and Norwest Mortgage. Norwest Banks can serve as mortgage lending branches of Norwest Mortgage. On the other hand, Norwest Mortgage allows the banks to invest its surplus funds for the short term while the mortgage banker pools them together to sell to the secondary mortage market. First Bank Stays with Banking

Meanwhile, First Bank System is sticking with its commercial lending business and will concentrate on several new strategies in developing that business.

George Dixon, the chairman of First Bank System, said his company foresees a period of slow growth in the upper Midwest for the next two decades. As a result, "We've adopted a nationwide strategy to rejuvenate loan growth," Mr. Dixon said at the time the new plan was announced.

The lead bank, First Bank Minneapolis, will coordinate and implement the nationwide banking strategy. The lan is to focus on large companies with subsidiaries or distribution centers in the Twin Cities area. Like securities analysts, the bank will focus on six to eight industry segments, and pursue the top companies in each as loan customers. …