ST. LOUIS -- From his base here, Andrew Craig 3d is aggressively buying up turf in the Midwest and Southwest.
In the past 18 months, his Boatmen's Bancshares Inc. has struck deals for $9 billion of assets in five states: Arkansas, Iowa, Missouri, New Mexico, and Oklahoma. Now, sources say, he's on the prowl in Kansas, which recently opened its borders to out-of-state acquirers.
Wall Street has applauded most of the deals, boosting Boatmen's trading value by roughly 9% this year and making its 61-year-old chief executive something of a rising star.
The rapid growth appears to be positioning Boatmen's, which has $19.7 billion in assets, as a regional powerhouse. But some analysts still have reservations.
Of concern is Mr. Craig's agreement to acquire Sunwest Financial Services, an ailing $3.4 billion-asset bank in Albuquerque, N.M. The price tag: $380 million in stock, or roughly 1.65 times Sunwest's book value. With the transaction, Mr. Craig surrendered 10% of Boatmen's expected earnings per share this year, reckons Merrill Lynch & Co.
"Sunwest was more dilutive than we would have liked," says Merrill Lynch analyst Sandra Flannigan, who still recommends Boatmen's shares for long-term investment.
Of course, the CEOs of other emerging superregionals have sacrificed earnings to do deals. Robert Gillespie at Cleveland-based Society Corp. and Daniel R. Smith of First of America Bank Corp., Kalamazoo, Mich., have both taken it on the chin after winning bidding contests.
Questionable Track Record
But unlike Society and First of America, Boatmen's does not have a stable track record on takeovers. Prudential Bache Securities estimates Boatmen's earnings per share were stagnant in the last half of the 1980s because of its takeovers of Charter-Corp, General Bancshares, and Centerre Bancorp. - and those were all in-state acquisitions usually the easiest to pull off.
In fact, Boatmen's earnings are down markedly from a decade ago on a per-share basis, before adjustments for mergers. The company earned $4.07 a share last year, down 22% from 1981. And that doesn't take inflation into account.
A large measure of investor caution about Boatmen's stems from deals done by Mr. Craig's predecessor, Donald Brandin.
But given that the expansion-minded Mr. Craig predicts Boatmen's "pretty quickly" will grow to $30 billion - 50% larger than it is now - analysts who support the executive say they don't want Sunwest to become a models for deals to come.
The issue facing Mr. Craig is "whether, in the midst of the industry's merger euphoria, he will maintain pricing discipline," Ms. Flannigan says.
Though mindful of the concerns, Mr. Craig is calm and confident, saying bigger an better aren't mutually exclusive. "Our goal is to improve financial performance, to become one of the very best," he says.
A big man with close-cropped silver-gray hair and a penetrating gaze, Mr. Craig is doing deals of every form and fashion.
Priority: Geographic Expansion
The former U.S. Army intelligence officer has bought an $850 million-asset Oklahoma City bank from Los Angeles-based First Interstate Bancorp; made a so-called supervisory acquisition of the profitable but capital-short Superior Federal Bank, the largest thrift in Arkansas (assets: $700 million); and snapped up the $1.2 billion-asset First Interstate of Iowa Inc. in a stock-swap deal.
"We are looking for geographic expansion and expect to continue to find opportunities," says Mr. Craig. The relaxed and personable executive jokes that he bases takeover decisions on whether there's good bird hunting nearby.
Mr. Craig became president of Boatmen's in 1985, when he left the same post at Banc Ohio National Bank. In 1988, he succeeded the retiring Mr. Brandin as chairman and chief executive.
Most of Mr. Craig's recent deals were made on favorable terms, say analysts, who note that he enjoys several bidding advantages. Few other banks in the region have the deal-making appetite of Boatmen's, meaning Mr. Craig is bidding at sparsely attended auctions. And state laws have kept out acquirers from other regions.
An Important Drawback
Mr. Craig's one handicap is the trading value of Boatmen's common stock. At 1.38 times book value, the company's shares lack the exchange value of other acquisitive Midwest banking companies such as Society, which is trading at almost 2 times book.
Forced to offer more shares in exchange for those of the companies he acquires, he runs a greater risk of dilution.
A native of Buffalo, the executive is working to earn his way out of the trading disadvantage.
In an encouraging performance, Boatmen's racked up $100.6 million of net income the first half of this year, a 315 increase from 1991. The results equaled a 1.7% return on average assets and 13.8% on equity
"Boatmen's earnings have reached heights that no one dreamed of a year ago," notes George Salem, a banking analyst at Prudential Bache, New York.
Too Many Directions at Once?
Still, observers wonder whether Mr. Craig can further improve profitability while entering so many new markets at once. "My concern is that management is taking on too many challenges," says Edward Dillon, an analysts at SNL Securities Inc., Charlottesville, Va.
Mr. Craig admits he does not yet have a managerial blueprint for the larger company Boatmen's will become. "I believe we'll have the ingenuity to adjust," he says. "You just delegate bigger pieces of the company to people who are qualified."
Delegation is not what he really enjoys, however.
The graduate of the University of Buffalo says he can't stand to read memos. He recounts how top regional managers trek to his boardroom, where he presides over Judgment Day. "This is a come-to-Jesus meeting, right here, on a quarterly basis, with me," he says.
Holding People Accountable
Strong emphases on "eyeball to eyeball" contact and personal accountability are at the heart of Mr. Craig's management style.
When asked how he could be sure about Sunwest's management, given the severe realty lending woes afflicting the company, Mr. Craig ticked off the career history of Sunwest chief executive Ike Kalanjis, noting that problems had surface before he gained a senior post.
"I know the history of Ike Kalanjis," Mr. Craig says, adding that he expects him to sustain Sunwest's turnaround. But "if he doesn't, there will be somebody else down there."
Emphasizing just how serious he is about the performances of field managers, Mr. Craig says: "Very frankly, since I've been here, I've changed seven to eight bank presidents because they didn't cut the mustard."
An Easy Touch with People
But don't get Mr. Craig wrong. This executive has a warm presence, and he seems to relish the customer visits and employee cheerleading that go with the CEO's post. For example, he recently spent a day in the northern New Mexico town of Raton helping a Sunwest bank celebrate its 100th anniversary.
"We had a luncheon at the country club with all the town officials and leading businessmen and the board of directors," Mr. Craig recalls. "Then they had a meeting in the lobby of the bank, and a big hoopla, and I spoke to a hundred people there, I guess."
Even as he hobnobs in the lobbies of banks he is buying, Mr. Craig has his team at work in the back offices, scrutinizing portfolios and systems.
Mr. Craig says auditing just loans fall short. "You've got to perform an operational audit," he says, "because if you don't convert these things accurately and efficiently, you get killed."
Preparation is another priority for Mr. Craig, who says he strives to complete as much merger work as possible before closing a deal. Only weeks after closing the Iowa acquisition, he says, Boatmen's launched an ad campaign already in use in other regions, touting products introduced during the merger.
Probably the strongest enhancement Mr. Craig brings to his regional acquisitions is trust services, provided by a $31 billion-asset unit that is among the nation's largest.
Robust capitalization and demonstrated efficiency also are cards Mr. Craig brings to the table. Boatmen's, which got its name from serving shippers on the Mississippi, placed 10th among the nation's 50 largest banking companies in tangible common equity capitalization at March 31, says Keefe, Bruyette & Woods Inc., New York. The company placed 15th out of the largest 50 in efficiency.
Some analysts have gone so far as to say Mr. Craig has too much capital, noting that holding fewer dollars of assets for each dollar of capital can mean a lower return on equity.
His Ticket to the Dance
Mr. Craig says abundant capital is a market entrance ticket that he will not throw away. "Those of us who are strongly capitalized are going to be permitted to offer some financial services that some lesser-capitalized institutions won't," he says.
He is not unmindful of what a higher return on equity would do for Boatmen's stock price and his ability to make stock-swap transactions. He says his goal is a 15% return and that Boatmen's 13.8% first-half ROE was closer to that benchmark than in quite a while.
Recently, Mr. Craig has been lacing quarterly earnings reports with statements about "a basic step-up in earnings power," suggesting recent results can be sustained and even improved upon.
Scouring in Store for Sunwest
The acquisition of the $3.4 billion-asset Sunwest is slated for closing this fall. Mr. Craig indicates that the company, which has been operating under a supervisory agreement with the Federal Reserve Bank of Kansas City, will undergo a thorough balance sheet scouring before it is absorbed.
But he says acquisition plans and announcements are insufficient to make Wall Street turn handspring about Boatmen's. "I I am a firm believer in standing on results," Mr. Craig says. "So as we continue to progress in our financial performance, I expect Wall Street to recognize that."