An $8 billion-asset Michigan bank company is beginning to offer correspondent services to smaller in-state banks and expects to expand into other Midwestern markets later.

Flint-based Citizens Banking Corp. said last week that it would immediately begin offering commercial-loan participations and letters of credit in Michigan.

"We've grown to a size that we have some expertise in these areas that could benefit other community banks," said James R. Kanary, a former regional bank president at Citizens who now serves as senior vice president of correspondent banking. "We see a strong need among smaller community banks to participate out some of their loans."

Later, Citizens wants to add trust, cash management, and investment products to its correspondent offerings, and extend them to other states where it operates branches - Illinois, Iowa, Minnesota, and Wisconsin. No time frame has been established for those initiatives.

Citizens' entry into the Michigan correspondent market could help fill a void left by mergers, Mr. Kanary said.

For instance, Kalamazoo-based First of America Corp. offered correspondent services before Cleveland's National City Corp. acquired the bank in 1998. Manufacturers National Corp. of Detroit also served as a correspondent bank before Comerica Inc. - which also offered correspondent services - acquired it in 1992.

Now the Michigan market is dominated by two large players: $40 billion-asset Comerica of Detroit and $273 billion-asset Bank One Corp. of Chicago.

Banking analyst Wayne R. Bopp said it would not be "far-fetched" for Bank One to exit correspondent banking as part of the turnaround effort of its new chief executive officer, Jamie Dimon. In addition, Comerica is a very attractive acquisition target, he said.

"Correspondent banking requires a multi-year relationship," said Mr. Bopp of Robert W. Baird & Co. in Milwaukee. "If someone buys Comerica and Bank One exits the business, what do you do? Even if just one of those things happens, you would be at the mercy of the remaining bank."

Bankers' concerns about precisely that scenario helped trigger state legislation earlier this year that permits the formation of a bankers' bank. However, bankers so far have not attempted to organize one.

For its part, Citizens is eyeing a wider variety of services than just the loan-participation specialty of bankers' banks. Even if its product breadth initially cannot match that of its established rivals, Citizens said its size and structure as a holding company for five community banks could give it an edge on the competition.

"We can structure loans and products to be more flexible than larger banks," Mr. Kanary said.

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