When NationsBank Corp. swallowed Boatmen's Bancshares this year and Mercantile Bancorp. bought two of its St. Louis competitors, other banks in the market trembled.
Small institutions contended they could feed on the scraps the bigger ones didn't want. But that left Magna Group Inc., with $6.9 billion of assets, in a precarious position. St. Louis-based Magna, which has less than one-fourth of its assets in Missouri, found itself sandwiched between two giants.
Now, chairman and chief executive officer G. Thomas Andes says, Magna wants to do some acquiring of its own.
In a recent interview, Mr. Andes said he is ready to do a merger and would acquire a company with $200 million of assets or more. He said Magna also would consider combining in a merger of equals. He is not, he said, ruling out any possibility.
"They want to acquire," said analyst Timothy Willi of A.G. Edwards in St. Louis. "They feel it's imperative they do an acquisition."
Magna has vast experience in acquisitions. Under former chairman and CEO William S. Badgley, Magna acquired more than 40 banks. Mr. Andes, 54, succeeded Mr. Badgley in early 1995. He said he is eager to do deals but not just for the sake of increasing size.
"It's not how big we are. It's how good we are," said the soft-spoken Mr. Andes.
That sentiment is a little different from the one expressed by Mr. Badgley, who was viewed as an aggressive builder.
Mr. Andes is much more in tune with the notion that a bad acquisition can cause the downfall of a company, particularly in the current environment of rapid consolidation, observers said.
"Tom is superattentive to earnings dilution," said David Olson, an investment banker at Donaldson, Lufkin & Jenrette in Chicago.
Unlike a CEO who might court targets for several years before they agree to sell, Mr. Andes would rather seize the moment. "He has a good eye for opportunistic acquisitions," Mr. Olson said.
In March Magna closed a $252 million deal to buy Homeland Bankshares of Waterloo, Iowa. The $1.2 billion-asset Homeland expanded Magna beyond its traditional Missouri and Illinois bases. (Until the merger of equals between Magna and St. Louis-based Landmark Bancshares in December 1991, Magna was based in Belleville, Ill.)
Although northern Iowa is a long way from St. Louis, Mr. Andes was attracted to a compatible customer base, said John J. Harris, an investment banker at ABN Amro Chicago Corp. who advised Homeland on the sale to Magna.
"Magna positions itself as a consumer bank," Mr. Harris said, "and they don't specialize in high-net-worth individuals."
Homeland was in markets similar to the blue-collar Illinois towns of Belleville, Decatur, and Peoria, where Magna has large market shares. Waterloo, an aging town historically dependent on manufacturing, is similar to those Illinois markets.
While Magna has been prudent about acquisitions, it has stumbled in other areas.
A partial writedown of a $29 million loan in the first quarter led to a 20-cent-per-share decline in earnings compared with the same quarter of 1996. The company said it is working to recover the loss. Mr. Andes said the loan was unusually large for Magna and would not have been made except that the borrower had a long relationship with the bank.
Mr. Andes also said NationsBank and Mercantile will more likely attract large corporate borrowers, as opposed to the small and midsize businesses and consumers on which Magna focuses.
While Magna may be able to grab a small amount of business from competitors in St. Louis, Mercantile and NationsBank have already snatched most of the market for both consumers and businesses. As a result, much of Magna's growth may have to come from outside Missouri.
Of Magna's deposits, 55% are in Illinois, 25% in Missouri, and 20% in Iowa.
Acquisitions may be a way of staying alive until someone else acquires the company, analysts said.
"Their numbers are pretty good, but they don't compare as favorably as a NationsBank or a Mercantile," said Joseph Roberto, an analyst at Keefe, Bruyette & Woods Inc.
Magna's continued independence has been in question for a number of years. When asked about this, Mr. Andes recited a well-rehearsed and oft- repeated statement about "shareholder value" and the need to stay independent.
But most observers said Mr. Andes would sell for the right price, that he would do what is in the best interest of the company.
While the Homeland deal has worked well for Magna, analysts said, the timing was intriguing.
A year ago Magna said it was buying Homeland just four days after NationsBank announced it was acquiring Boatmen's. The Boatmen's deal also expedited discussions between Mercantile and in-market competitors Mark Twain and Roosevelt Financial Group.
It is rumored that Magna and Roosevelt walked away from a merger of equals, sending Roosevelt into the arms of Mercantile.
Asked why Mr. Andes didn't affiliate with an in-market competitor, the chief executive responded, "We have discussions periodically with others. Some deals work, and some don't."
Analysts agreed that Mr. Andes is extremely conservative, which they view as a positive.
Magna is looking at acquisitions or partnerships with nonbanking companies, citing a desire for fee businesses such as trust, brokerage, insurance, and subprime lending. But so far it has only reeled in a small brokerage, MGI Group Inc. of St. Louis, which it bought in 1993.
"Our philosophy is to move very cautiously on nonbank acquisitions," Mr. Andes said.
He also wants a partnership with a subprime auto finance specialist. Magna's affiliation with First Merchants Acceptance Corp. ended two months ago because of the Chicago company's financial problems. Before the First Merchants agreement, Magna had considered buying a subprime lender.
"I'm very glad we didn't," Mr. Andes said.
As for competing with the big guns, Magna has made investments in technology that Mr. Andes said give it an edge when making acquisitions.
Magna prices its products competitively, analysts said. The company said it was able to curb deposit runoff in Iowa after the Homeland deal by offering a certificate of deposit special.
Back home in St. Louis, some retail customers have become jaded about where they bank.
Don and Gloria Richardson have banked with Magna and its St. Louis predecessors for 40 years. "Everyone's friendly, and we like the services," said 71-year-old Don, eating a free bonbon he had just picked up at the teller station.
Would the Richardsons, both retired, still bank at Magna if it were taken over? "Sure, if they offered the same services," Mr. Richardson said.
