Cleveland’s Charter One Financial Corp., which expects a third-quarter completion of its $241 million purchase of Alliance Bancorp, in the Chicago suburb of Hinsdale, is mapping out a bold retail banking plan for the metropolitan area.

Charter One is among a growing number of Midwest banks based outside Illinois that are looking to Chicago as a source of new deposits and cross-selling opportunities. It is coming off a tough 2000, when it reduced earnings projections after higher interest rates squeezed its net interest margin.

New market expansion may help ease a revenue-growth pinch. In fact, Charter One chief executive Charles J. “Bud” Koch said in a recent interview that a retail banking sales push can vault his company to No. 1 or No. 2 or market share in Chicago.

Charter One may not stop there. Mr. Koch said he will continue to make acquisitions, particularly in Ohio, Michigan, Illinois, New York, Vermont, and Massachusetts, as long as the deals would add to earnings. “The real reason of doing deals is cranking up the revenue side on the acquired company,” he said. “We don’t do strategic deals. We do deals for financial reasons.”

Buying Alliance would make Charter One the sixth-largest banking company in Chicago, leapfrogging Citigroup. Alliance has $1.2 billion of deposits and 19 branches in the metropolitan area. After the merger, Charter One would have $5 billion of deposits and 77 branches in the market.

But Charter One will have to contend with new and well-established companies, including Bank One Corp., the local giant, and Fifth Third Bancorp, which will gain a substantial foothold there next month with the conversion of branch operations acquired from Michigan’s Old Kent Financial Corp. With that deal, Fifth Third becomes the fifth-largest bank in the market. ABN Amro is second and Bank of Montreal’s Harris Bank third, according to analysts.

Mr. Koch’s strategy hinges on retail banking, particularly in sales of checking accounts and first mortgages that can be used as springboards to sell other products and services. “Retail banking is the key,” Mr. Koch said about success in Chicago. “Providing financial services to middle-income America is not sexy,” he added. “It is a lot of drudgery and hard work. It is a space underserved in banking.”

The idea sounds similar to the strategy followed by Jerry Grundhofer, who took Star Banc Corp. of Cincinnati from a struggling institution to one that just a few years later was able to swallow up Firstar Corp. of Milwaukee, Mercantile Bancorp of St. Louis, and U.S. Bancorp of Minneapolis. Mr. Grundhofer favors growth by aggressively cross-selling retail banking services.

Charter One already has 58 branches in Chicago, built up since its 1999 acquisition of St. Paul Federal. Mr. Koch said the Alliance deal would add 400,000 checking accounts and 100,000 mortgage loans to the bank.

“A lot of those folks are brand new customers,” he said. Charter One will then try selling those new customers debit cards and online banking options. “We get those two core products and cross-sell other products off those two products,” Mr. Koch said.

The company has an “excellent track record in growth and revenues,” said Mark Grossi, executive vice president of retail banking. Building fee income and core deposit growth should not be a problem in the Chicago market, he said. “Chicago is a lot of small cities,” Mr. Grossi said. “You do most of your competing on the consumer side on a street corner level.”

If past experience is any indication, Charter One should be able to make a dent in market share after the Alliance acquisition. “Charter One tends to be midmarket to small where those other guys are a little higher,” said Joy Palmer, an analyst with Merrill Lynch. “They are very good at cross-selling. They are trying to beef up the retail bank in markets where they can have value added.”

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