Brother spares a dime - or two
NEW YORK--Firstar Bank, led by Chief Executive Jerry Grundhofer, agreed yesterday to buy U.S. Bancorp, run by his older brother John Grundhofer, for about $19 billion in stock to create the eighth-largest U.S. bank.
The combination unites the Grundhofer brothers, who spent the past decade building two of the Midwest's largest banks. John Grundhofer earned the nickname "Jack the Ripper" for his aggressive cost-cutting strategies.
Milwaukee-based Firstar, which bought Mercantile Bancorp last year for $8.9 billion, is buying an even larger bank that has struggled in the past year to boost revenue and profit. Twice recently, U.S. Bancorp warned that earnings wouldn't meet expectations as interest rates rose and deposit growth slowed.
Shares of Firstar fell $2.25 to $20 yesterday in trading on the New York Stock Exchange as investors worried the company is taking on too much in making the purchase. U.S. Bancorp shares rose $1.81 to $25.
"They're making this acquisition right on the heels of the Mercantile acquisition," said Frank Barkocy, an analyst at Keefe Managers, which recently sold its Firstar holdings. "They have not yet demonstrated that they can grow the revenue, either at the old Firstar or at Mercantile. I think a lot of people are surprised they're moving so soon."
The brothers will work together for the next two years, with Jerry Grundhofer, 56, retaining the titles of CEO and president, and John Grundhofer, 61, serving as chairman until he retires at the end of 2002. Where John Grundhofer has focused on cutting costs, Jerry Grundhofer has boosted profits at Firstar, which has $74 billion of assets, with an incentive program that rewards executives for increasing returns.
The different management styles produced different results, with U.S. Bancorp's stock recently trading at 11 times analysts' estimates for its earnings this year and Jerry Grundhofer's Firstar trading at 13 times estimates. The difference in stock price ultimately allowed the younger Grundhofer to buy his brother's larger bank.
Firstar will exchange 1.27 shares for each of U.S. Bancorp's, valuing the Minneapolis-based bank at $25.30 a share. The companies expect to close the transaction in the first quarter, at which point they will operate under the U.S. Bancorp name and have about $160 billion in assets. The bank will be based in Minneapolis.
The companies expect to save $266 million a year through cost-cutting, and take an $800 million charge to cover the costs of combining.
The transaction puts Jerry Grundhofer's company into California and the Pacific Northwest. The company said it would have 2,200 branches in 24 states.
Portland-based U.S. Bancorp was bought in 1997 by First Bank System of Minneapolis for $9 billion. U.S. Bancorp's previous acquisitions included Spokane-based Old National Bank, Seattle-based Peoples National Bank, and Bellevue-based West One Bank.
U.S. Bancorp has 209 branches in Washington state and $7.3 billion in deposits.
Barbara Nombalais, a spokeswoman for U.S. Bancorp in Seattle, said it was unlikely the merger would have much effect on local employment or the branch network, given that Firstar doesn't operate in Washington.
Banking brothers
John "Jack' Grunhofer
Age: 61
Position: Chairman and CEO, U.S. Bancorp
History: Graduated from Loyola University (now Loyola Marymount) in 1960. Started as a credit analyst/trainie at Union Bank of Los Angeles after graduation; duties included repossessing cars. Stayed at Union until 1978, when he moved to Wells Fargo; rose to vice president and senior executive officer for Southern California. Became chairman, president and CEO of First Banks System (later U.S. Bancorp) in 1990.
1999 compensation: Salary $895,003; bonus $750,000; other $171,417.
Jerry Grundhofer
Age: 56
Position: President and CE0, Firstar
History: Graduated from Loyola Marymount. Started at Union Bank in 1967; later workd at Wells Fargo. Joined Security Pacific Bank in 1967 as president and later CEO; became vice chairman of Bank America in 1992 after it bought Security Pacific. Left in 1993 to head Star Banc, which bought Firstar in 1998.
1999 compensation: Salary $850,000; bonus $1.7 million; othr $428,104
Top bank holding companies
Firstar's purchase of U.s. Bancopr for about $19 billion in stock is a deal that would create the nation's ninth-largest banking company.
Assets in bilions, as of June 30. <table BORDER COLS=2 WIDTH="50%" HEIGHT="50%" >
</table> The ASSOCIATED PRESS| Citigroup | $791.3 |
| Bank of America | $679.5 |
|
Chase Manhattan J.P
Morgan & Co. # |
$662.4 |
| Bank One | $272.7 |
| First Union | $258.0 |
| Wells Fargo | $234.2 |
|
FleetBoston Financial-Summit
Bancorp. # |
$220.3 |
| Firstar-U.S. Bancorp # | $160.6 |
| SunTrust Banks | $99.8 |
|
# Merger pending
SOURCE: The Federal Reserve |