Firstar Corp., under the gun to restructure costs or face a takeover, is inching closer to an announcement that could result in major cuts - including the elimination of hundreds of jobs.

On Tuesday, the $19 billion-asset Milwaukee company said it plans to consolidate its five banks into one by the fall of 1997. In addition, the bank named the senior managers who will run three major business lines: community banking (which includes retail and small-business lending), commercial banking, and trust and investment management.

Chris M. Bauer, chairman of Firstar Bank Milwaukee, will head community banking; Richard W. Schoenke, chief executive officer of Firstar Bank Minnesota, will head commercial banking; and Michael J. Bills, Firstar Corp. executive vice president of trust and investment management, will continue to oversee that operation.

Firstar will designate five bank regions - Iowa, Illinois, Minnesota, Milwaukee, and the rest of Wisconsin - with market presidents in each. Over the past year, the company has consolidated its 40 banks into five.

The reorganization is the tip of a major cost-cutting plan expected to be announced by the end of this month or early February. Firstar has said it wants to reduce its efficiency ratio - its expenses as a percentage of revenues - from 60% to 55% by 1997.

To help achieve this goal, the company has hired Tandon Capital Associates, a New York consulting firm that has worked with Fleet Financial Group and other banks to make dramatic cost cuts.

Analysts, who said Firstar will need to cut as much as $60 million this year to reach its goal, added that most of the expense savings would likely come from flattening management and cutting employees. Closing down any of Firstar's lucrative fee businesses would not be a wise move. But chairman Roger Fitzsimonds said "We're looking at every single area."

Mr. Fitzsimonds added that he wants the bank to remain independent. Firstar was strongly rumored to be a takeover candidate last year.

"Firstar's board has (said) our goal is to be independent, and the only way we can earn that right is by creating value," Mr. Fitzsimonds said.

Ben Crabtree, an analyst with Dain Bosworth Inc., said Firstar needs to make its efficiency goal or it will surely be taken over. "I don't know how they're going to get there, they don't know how they're going to get there, but they better get there," Mr. Crabtree said.

Mr. Crabtree said Firstar is still trying to digest two acquisitions that closed in 1995: the $1 billion-asset Investors Bank Corp. of Minneapolis and the $1.8 billion-asset First Colonial Bankshares of Chicago. The high price paid for First Colonial "was a stumble, and stumbles create vulnerability," Mr. Crabtree said.

Over the next year, Firstar will likely be out of the merger game, other than to make fill-in acquisitions as they're available, Mr. Fitzsimonds said. To that end, Firstar said Wednesday it agreed to buy $1.2 billion- asset American Bancorp., based in St. Paul, for $220 million in cash and stock. The deal boosts Firstar's deposit market share in the Twin Cities from 5.6% to 8.1%.

William McGinnis, an analyst with Robert W. Baird & Co., said Firstar has spent an unusual amount of time soliciting employees for ideas for cost savings. Mr. Fitzsimonds said that at least 1,000 employees have been involved in ideas for the restructuring. "They'll have thrown a thousand ideas against the wall," Mr. McGinnis said. "Some look pretty interesting. Some look ridiculous."

Analysts agreed that the restructuring will likely mean a consolidation of backroom operations.

And, they added, the reorganization announced Tuesday is a sign that Mr. Fitzsimonds' statements about remaining independent are more than just talk.

"Hopefully, they'll be more streamlined, more focused," said Denis LaPlante, an analyst with Fox-Pitt, Kelton Inc. in New York.

"They're not doing this to dress up the company for sale," Mr. LaPlante added. "They're doing this for the long-run belief of running the company for the foreseeable future."

"I think Roger (Fitzsimonds) wants to take Firstar to the next level," said Michael Durante, an analyst with McDonald & Co. of Cleveland. "They've not been hitting all cylinders with acquisitions, so why would they want to sell when they're behind the trend?"

Mr. Durante said he believes Firstar will make its goal and survive the present wave of takeovers. Two areas where Mr. Durante expects no cuts are the credit card and investment businesses, where he said Firstar has been very profitable.

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