Correspondent banking: Seeing Opening After a Buyout, Bank Seeks

A Minnesota community bank is taking advantage of industry consolidation to enter a niche dominated by big institutions: correspondent banking.

Perceiving demand by independent banks for a correspondent provider that wasn't also competitor, Liberty State Bank of St. Paul decided to get into the action last year following the acquisition of neighboring American Bancorp. by Milwaukee-based Firstar Corp. The 93-year-old American had about 450 correspondent clients.

"When Firstar took over American, I had a lot of people - little community banks - say they didn't have anywhere to go," said Liberty chief executive Timothy Macke.

Liberty has about $245 million of assets and, according to Sheshunoff Information Services, racked up a 0.95% return on assets during the first six months of 1996.

Liberty's action demonstrates how the consolidation of correspondent banks might create a niche for small providers that don't compete against their prospective clients.

"We're offering opportunity for those independent banks that don't want to do business with the regionals," Mr. Macke said.

Liberty, an inner-city bank focused on commercial, consumer, and mortgage lending, had no experience in correspondent banking before launching the initiative last summer.

So far, it has been concentrating primarily on drafting policies and training staff. By Mr. Macke's own count, Liberty has done business with only three or four banks.

"We're piecing it together," Mr. Macke said.

To do so, Liberty is counting heavily on Jim Russell, who was hired to launch the program after being let go when Firstar absorbed American. Mr. Russell had been a correspondent banking official at the $1.2 billion-asset community bank.

Liberty will focus on providing credit, in the form of loans and syndications, to banks, Mr. Macke said.

Liberty initially will target banks in Minnesota and Wisconsin, although it could ultimately serve clients in other states, Mr. Macke said.

Mark P. Reineman, first vice president of correspondent banking for Firstar, said a demand probably exists for a correspondent like Liberty, although its menu of services would be more limited than Firstar's.

"Certain community banks would prefer to work with a local, independent correspondent as opposed to a regional," Mr. Reineman said. "The question becomes what products or services can they provide."

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