Firstar Corp. and Mercantile Bancorp. of St. Louis may have to reduce their Iowa deposits by more than $1 billion if their pending merger is to be approved by state regulators, Steven Moser, Iowa's deputy superintendent of banking, said Wednesday.

Mr. Moser said his latest figures indicate that a combined Firstar and Mercantile would have to move or divest $1.1 billion of deposits, because of an Iowa law that prohibits banks from gaining more than 10% of the state's deposits through mergers. Mr. Moser estimated that the merged bank would have about $5.65 billion of deposits, or 13% of the state's total. That figure is slightly higher than the $5.07 billion, or 12.2% of the state's total deposits, in an estimate provided by Sheshunoff Information Services.

To comply, Firstar and Mercantile would have to move the deposits out of state or divest some branches. The companies also must prove months before merging that they have actually reduced their deposit holdings in the state, Mr. Moser said.

A final decision about the amount of deposits to be moved or divested is to be made by the end of the third quarter. The two companies said they plan to close their deal in the fourth quarter.

Firstar of Milwaukee agreed to buy St. Louis-based Mercantile late last month for about $10 billion. Of the 12 states in which the two companies operate, the largest overlap is in Iowa.

Firstar officials hope to transfer as much as half of their deposits to other states and sell off the remaining deposits to satisfy the state law.

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