Year of the Deal: Going West, Grundhofer-style

In 1990, when he was knee-deep in turnaround tasks at the ailing First Bank System of Minneapolis, John F. Grundhofer never would have believed that he would see assets more than triple in seven years. They doubled in 1997 alone.

"I don't think anybody could have predicted that," Mr. Grundhofer said. "I've been in the industry for 39 years and it has changed more rapidly in the last five than any other time."

First Bank System changed its name this year to U.S. Bancorp, following its $9 billion acquisition of U.S. Bancorp of Portland, Ore. That deal secured for Mr. Grundhofer a firm West Coast beachhead. The next stop, observers say, could be California.

Investors immediately hailed the deal as a big win.

"The banking industry has seen few mergers in which the stock prices of both the acquirer and the target rise in just a few days after the announcement," said Michael Mayo, an analyst with Credit Suisse First Boston.

That was in large part because of Mr. Grundhofer's reputation for making acquisitions work-and for running one of the leanest and most technologically sophisticated banking companies.

The son of a bartender, Mr. Grundhofer, 58, built his company from a six-state, $20 billion-asset organization that was losing millions on bad loans and investments in 1990 to a superregional powerhouse spanning 17 states, with $72 billion of assets. The former Wells Fargo & Co. executive has overseen 24 bank and nonbank acquisitions.

"We just wanted to put the company in a position to control its own destiny," Mr. Grundhofer said. "And you do that through performance."

In 1989, the year before he arrived, the old First Bank earned $1.9 million. Last year it earned $740 million, up 30% from 1995. Analyst Ben Crabtree of Dain Bosworth Inc. attributed much of the success to Mr. Grundhofer's aggressive cost-cutting, restructurings, and technology investments.

The tech spending bolstered the company's ability to absorb U.S. Bancorp. The old U.S. Bancorp's chairman, Gerry Cameron, said technology challenges were a major reason for selling.

"We had spent a fair amount of money on technology and we were at the spot where we could leverage that," Mr. Grundhofer said.

Mr. Grundhofer and U.S. Bancorp will stretch their merger skills in coming months as they complete the cross-industry deal announced Monday: the $730 million cash acquisition of Piper Jaffray, the Minneapolis-based regional broker.

And what's next?

"You can't really project the timing of most of these transactions," Mr. Grundhofer said. "You've just got to have the firepower when it happens."

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