Sunday, July 18, 1999

Fifth Third, Firstar take different paths to making big money

Schaefer prefers tried-and-true

The Cincinnati Enquirer

        The recent acquisition strategies at Fifth Third Bancorp and Firstar Corp. have been quite a contrast.

        Cincinnati-based Fifth Third has opted to gobble up smaller community banks and thrifts to expand its Tristate presence, while Milwaukee-based Firstar has chosen to buy larger regional banks to become a bigger player in the Midwest.

        Though the strategies are not the same, both have similar goals: to immediately bring investors higher returns, expand geographically, and serve more individuals and businesses.

        Wall Street analysts contend that much of the difference has to do with how the chief executives of Fifth Third and Firstar operate.

        Coincidentally, Fifth Third and Firstar, archrivals in the Tristate banking market, have stock prices strong enough to allow both to do deals that a lot of similar-sized banks could not have done.

        Milwaukee-based Firstar is the successor to Cincinnati's Star Banc Corp., a bank that Fifth Third tried unsuccessfully to buy in 1992.

        Fred Cummings of McDonald & Co. in Cleveland said Fifth Third and Firstar are among the nation's best banks — arguably the top two — at making money, but their recent expansion plans have been different.

        He points to the banking backgrounds of George A. Schaefer Jr., Fifth Third's president and chief executive officer, and Jerry A. Grundhofer, Firstar's president and chief executive, as possible reasons the banks' acquisitions have been big and small game.

        He noted that Mr. Grundhofer created the new Firstar, with Star's $8 billion stock acquisition in November of the Milwaukee-based banking company. As part of the deal, Star adopted Firstar's name and moved its headquarters to its hometown.

        Six months later, Firstar surprised Wall Street when it agreed to pay $10 billion in stock to buy St. Louis-based Mercantile Bancorporation Inc., giving it about $75 billion in assets.

        Mr. Cummings said Mr. Grundhofer, a California native, was groomed at some of the West Coast's largest banks, including Bank of America Corp. and Security Pacific Corp. He said Mr. Grundhofer came from a culture familiar with megadeals, where he learned to make them work and adjust to his management style.

        In comparison, Mr. Cummings said, Mr. Schaefer rose through the ranks at Fifth Third, learned the bank's conservative culture and is comfortable doing what he knows works instead of taking risks.

        Fifth Third has spent or committed about $5 billion since autumn 1997 to make 14 acquisitions, including banks, thrifts and nonbanking companies. Its two most recent deals — for Evansville's CNB Bancshares Inc. and Peoples Bank Corp. of Indianapolis — would make it Indiana's third-largest bank, up from 18th.

        “You won't see him do anything to threaten Fifth Third's culture or change its management style,” Mr. Cummings said. “But that's OK, because he's putting up some of the best numbers in the industry.”


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