A sharp drop in mortgage interest rates is threatening a deal between a suburban Chicago bank and a neighboring thrift.

FBOP Corp. in Oak Park, Ill., is looking to knock $4 million off its $112 million offer for Calumet Bancorp, Dolton, Ill., because of concerns over Calumet's mortgage business.

Calumet's board rejected the restructured offer last week, calling it "unfair to shareholders." The thrift's board said it would be willing to reduce the acquisition price by $1.5 million. FBOP countered with a figure of $2 million, also rejected by Calumet's board.

Neither FBOP nor Calumet officials returned calls seeking comment. In a release last week, Calumet disputed FBOP's grounds for reducing the purchase price and said it expects FBOP to terminate the agreement.

Calumet's stock price fell $2.50 per share, to $27.75, on news that the deal was in danger. At midday Wednesday, the stock was trading at $27.625, down 12.5 cents from Tuesday's close.

FBOP, a family-owned banking company with $3.3 billion of assets and six banks, had agreed Sept. 9 to buy Calumet in an all-cash deal. The transaction, valued at 1.27 times Calumet's book value, would have paid Calumet stockholders $32 per share.

The decision to reprice the deal relates directly to losses in Calumet's mortgage business.

Calumet, the $486 million-asset parent of Calumet Federal Savings and Loan Association, invests in three limited partnerships that administer purchased mortgage servicing rights. The decline in interest rates and subsequent boom in refinancings drained $4.1 million in profits from those partnerships, spurring a sharp drop in Calumet earnings.

The thrift reported a third-quarter loss of $727,000, or 21 cents a share, compared with earnings of $1.7 million, or 49 cents a share, the year before.

Stephen Covington, an analyst at Stifel, Nicolaus & Co. in St. Louis, said he is not sure how FBOP arrived at the $4 million figure, but he questioned whether Calumet could continue to operate independently.

Stephen Skiba, a bank analyst at ABN Amro Inc. in Chicago, said he remains confident the sale will be made. "It is still a good deal."

The deal was expected to close in early 1999. If it does, FBOP would control $3.8 billion of assets and operate 19 offices in Illinois, California, and Texas.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.