MILWAUKEE - Jerry A. Grundhofer has done it again.

In little more than one year, Mr. Grundhofer has quintupled the size of the banking company he runs -- now known as Firstar Corp. -- via acquisition. First, he combined his old institution, $15 billion-asset Star Banc Corp. of Cincinnati, with $20 billion-asset Firstar of Milwaukee. Then, in September, just 10 months after finalizing the Firstar acquisition, he completed the purchase of $35.5 billion-asset Mercantile Bancorp of St. Louis.

And if that weren't enough, Mr. Grundhofer and his team avoided many of the integration glitches that plagued other acquisitive banks in 1999. While other companies issued profit warnings, Firstar posted consistent double-digit growth. The company is on target for a yearend 1999 return on equity of 18% and yearend 2000 return on equity of 20%.

Observers credit the performance to Mr. Grundhofer's no-nonsense business philosophy, a seemingly contradictory blend of aggressive product selling throughout the company using incentive compensation as a motive and old-fashioned deposit gathering through the branches.

"Traditional banking is our business," the plucky 55-year-old said in a recent interview. "It's not glitzy, but we do a good job of it."

He may not have invented the idea, but many believe Mr. Grundhofer has successfully ingrained the product cross-selling culture of which many other bankers are still only dreaming. For that reason, he was selected American Banker's Banker of Year for 1999.

More so than at other banks, Firstar seems to understand cross-selling and make it work, said Edward Furash, a long-time banking consultant who now runs his own merchant bank in Arlington, Va. "Jerry brings the kind of leadership to the strategy that is imperative if it is to work."

Much of the success of the strategy can be linked to Mr. Grundhofer's energetic, driven personality. He is quick to say he believes the bank fashions its corporate identity in the same mold. Those who know him say he has an unusually strong charismatic appeal. "He's high energy," said Richard Davis, Firstar's head of retail banking and a longtime associate. "He's like a gospel leader."

"He's a spark plug," said Michael Mayo, an analyst at Credit Suisse First Boston. "He ignites the people around him. You walk away after talking with him and you want to go out and sell something."

Although based at Firstar's headquarters on the third floor of Milwaukee's tallest building, Mr. Grundhofer spends much of his time jetting around the banking company's territory, meeting with corporate customers in Kansas City one night and branch employees in Cincinnati the next morning. "Jerry thinks of the headquarters as being where he is," Mr. Davis said.

Mr. Grundhofer prefers to walk around the offices in his shirtsleeves, greeting employees by name and quizzing them about their progress meeting sales goals.

The obsessive behavior spills over into monthly management meetings. Mr. Grundhofer personally meets with the heads of 23 business lines each month to discuss sales figures and financial issues. "We spend an inordinate amount of time talking about how we're doing," Mr. Davis said. "Even the tellers are shareholder focused, customer driven."

Mr. Grundhofer came to Star Banc in the spring of 1993 at a critical time for the company, then a regional bank with $7.4 billion of assets. Just one year earlier, Star Banc's board of directors had managed to fend off a hostile takeover attempt by crosstown rival Fifth Third Bancorp. But shareholders were still clamoring for change.

At that point in his career, Mr. Grundhofer was already a retail banking convert, but it wasn't always so. The critical turning point came in the mid-1980s, when as a rising star in Wells Fargo & Co.'s commercial banking operation, he was handpicked to lead the San Francisco bank's Southern California retail operations. "I thought it was something he could do better," recalled Carl E. Reichardt, former chief executive officer of Wells Fargo who told Mr. Grundhofer of the job change during a quick stop in a California airport. "He sure as hell wasn't going to say no."

Until that day, Mr. Grundhofer said he planned to make a career of corporate banking. He says the experience working with corporate clients was what turned him into the confident salesman he is today. "I had to talk in front of people all the time and manage all kinds of different personalities," he said. "I had to negotiate."

Though reluctant to leave for the consumer banking world -- "I couldn't believe it," Mr. Grundhofer recalled as his initial reaction -- incredulity gradually gave way to enthusiasm. He rose quickly through the ranks, being promoted to executive vice president of all California retail operations in 1985. In 1987, Mr. Grundhofer jumped to Seattle-based Security Pacific National Bank as president and later chief executive officer.

Security Pacific was taken over by BankAmerica Corp. in 1992. Shortly afterward, Mr. Grundhofer was recruited by Star Banc's board to lead a turnaround and he, in turn, recruited two BankAmerica colleagues to help him, Mr. Davis and David Moffett, now Firstar's chief financial officer.

"We sat down and said we had to create a game plan to grow earnings faster, build revenues, and lower costs," Mr. Moffett said in a recent interview. "We decided to invest in the retail system because the fixed costs were already there."

Mr. Grundhofer said he came up with the bonus incentive program that ultimately made the strategy successful.

Nearly all employees participate in the incentive program. Bonuses are paid out based on quarterly performance evaluations that rate employees on such tasks as referrals that lead to sales and customer service. Scores are compared on a curve, so employees never know how well they will have to perform to make it into the top echelons for the payoff.

Branches are also evaluated. Friendly competitions and sales promotions are almost constant. And winners get prizes ranging from plaques to Las Vegas weekends.

In addition, all employees -- not just branch-based workers -- are required to raise deposits. Employees have been known to pass their business cards out in grocery stores when they see someone using a non-Firstar credit card. "We don't do business with people who don't do business with us," Mr. Davis said.

Within one year after implementing the sales strategy, Star Banc, formerly a struggling company with an underutilized retail unit and a demoralized staff, was transformed into a double-digit revenue growth machine. "It was a neat laboratory to work in," Mr. Davis said of the experiment at the old Star Bank. "We took an underdeveloped sales team and molded them."

The same sales emphasis was brought to Firstar and is currently being infused into the Mercantile network, Mr. Grundhofer and others said. The year 2000 bonus pool is set around $136 million, assuming the company's 24,000 employees meet their goals. "If we don't make Mercantile retail hum, we've failed," Mr. Grundhofer said.

Firstar plans to spend the next nine to 12 months absorbing the operations of Mercantile. Already, the company has shed some of the St. Louis banking company's undesirable -- at least by Mr. Grundhofer's standards -- operations: fixed-income trading, factoring, and broker-dealer services. (The latter has been outsourced to a third-party provider.) "We don't get into businesses we don't understand," Mr. Grundhofer said.

Down the road, observers see no reason why Firstar would not continue on the acquisition trail. Mr. Moffett said the company would follow the same pattern it has in the past -- picking distressed companies with solid, though underdeployed, branch resources and a commercial business in, curiously, low-growth areas that do not overlap too much with the company's existing operations.

"We favor low-growth areas," Mr. Moffett said. "Our targets are more likely to be in the Midwest and the Southeast. We have to get synergies. We have to get real value. Other mergers are built on cost cutting, and that's the problem."

Still, Mr. Moffett said acquisitions are not likely in the near term because the investment community has grown weary of integration risk. "We are in a digestion cycle right now. Mercantile is the No. 1 priority. And it will take a good year to do. Right now the economy does not favor acquisitions, it favors internal growth."

Firstar, meanwhile, may add new capabilities to round out its product line. In commercial banking, for example, which makes up half of the company's revenues, executives are planning to build up Firstar's large corporate lending and syndication capabilities.

Don't expect major changes in direction, though. "Consumer (banking) is where we get the juice for our shareholders," Mr. Grundhofer said. "We have a very well thought out and well-oiled machine."

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