Another Ohio-based banking company has decided that Chicago is the place to be.
Charter One Financial Corp. of Cleveland said Tuesday that it has agreed to buy Alliance Bancorp, which is based in the Chicago suburb of Hinsdale, in a $241 million cash and stock transaction that would make it Chicago's sixth-largest banking company, leapfrogging Citigroup. Charter One already has 58 branches in the area and has pinned its growth plans on the market. "We knew that our products and services were ideally suited to this market," said Charles J. Koch, chairman and chief executive officer, adding that the company has been looking for ways to boost its management team and marketing efforts in Chicago.
"Alliance Bancorp fits that objective perfectly," Mr. Koch said.
Rival Ohio companies have also been looking to Chicago, a growth market that could bring much-desired new middle-market and consumer business.
Fifth Third Bancorp in Cincinnati has made no secret of its desire to increase market share in the Chicago area. In November it announced plans to buy Old Kent Financial Corp. of Grand Rapids, Mich., which also has a substantial presence in Chicago. The deal would make Fifth Third Chicago's fifth-largest banking company.
Charter One is coming off a tough year during which it reduced earnings projections after higher interest rates squeezed its net interest margin. In July the company said its operating earnings per share would grow 10% from 1999. Analysts had expected growth of about 25%.
Alliance, the $2 billion-asset holding company for Liberty Federal Bank, has $1.2 billion of deposits and operates 19 branches in the Chicago metropolitan area. After a merger, Charter One would have $5 billion of deposits and 77 branches in the market.
Charter One began its entry into the Chicago market in 1999, when it merged with St. Paul Federal of Chicago. Previously, the company was focused on expanding into New England but switched course and decided to make itself better known in the Windy City. With the Alliance deal, Charter One would have 27 more branches than Citigroup, its closest competitor there.
"The Chicago market has been one of the key points to Charter One's future growth strategy," said Derek Statkevicus, an analyst at Keefe, Bruyette & Woods Inc. "This is one of those offers they can't refuse."
Out-of-state banks may also be hoping to take advantage of internal upheaval at Bank One Corp., the Chicago banking giant that is in the midst of a major restructuring as it tries to find its sea legs after several disappointing quarters.
The acquisition would give Charter One a 3% market share in Chicago, said Joy Palmer, an analyst at Merrill Lynch & Co. "They are a thrift that is migrating to a commercial bank," Ms. Palmer said. "They are going to deal more with the middle market than Bank One. It makes sense."
Mr. Koch said the deal "moves us up nicely in terms of market share and customer reach in the Chicago area." Alliance's asset mix "parallels Charter One's asset mix," he said.
The deal is in keeping with Charter One's pattern of acquiring smaller banking companies in growing markets. "This is the type of acquisition that Charter One has lived on," said Paul Miller, an analyst at Friedman Billings Ramsey & Co. in Arlington, Va. "It will help them increase earnings growth."
Under terms of the deal, Alliance shareholders would get $5.25 in cash and 0.72 share of Charter One common stock for each of their shares. About 6.7 million shares of Charter One stock are to be issued to fund the deal. It is expected to close in the third quarter.
Charter One has identified cost savings of about 30% of Alliance's expense base. The savings would come from eliminating duplicated back-office operations. Charter One anticipates some job cuts as a result. Ms. Palmer said she expects no job cuts in the branches.
Kenne Bristol, the president and chief executive officer of Alliance, said that consolidation with a company boasting a stellar track record is a good move. "I am sure Charter One will be able to take the franchise we have built and move it to the next level in terms of products and services," he said.