Firstar Jostled by Merger Speculation

Shares of Firstar Corp. surged briefly to a 52-week high of $48.125 on Monday, possibly helped by speculation that the bank could be a merger target for Bank of Montreal, analysts said.

The price, already bolstered by strong third-quarter earnings, gained 75 cents on Monday. But it had slipped $1.25 a share by late Tuesday trading, as investors cashed in gains.

Nevertheless, Firstar, looks generally promising to analyst Virginia A. Adair, who covers midwestern banks for Merrill Lynch Capital Markets. "They have clearly moved away from the pack," Ms. Adair said of Firstar.

Strong Franchise in Wisconsin

The American Banker reported Monday that Bank of Montreal may be hunting for a mid-western bank with assets of $10 billion to $15 billion.

Based in Milwaukee, Firstar has about $12 billion in assets and is known for its strong retail franchise in Wisconsin.

Bank of Montreal, said to be mulling an issue of stock in the United States as a prelude to an acquisition here, has declined to identify possible targets near the Canadian border.

Firstar has been helped by an upgrade in August by Thomson BankWatch, an American Banker affiliate, and by recent meetings of management with brokers and investors as part of the company's usual marketing effort, Ms. Adair said.

2 in Michigan Fit Profile

Two Michigan banks, Comerica and Manufacturers National Corp. also fit the profile outlined by Bank of Montreal, noted Kenneth Puglisi, analyst for Keefe Bruyette & Woods.

But shares in Comerica were unchanged at $44 Monday while shares in Manufacturers National rose by 25 cents on Monday to $35.25.

Some other midwestern banks might normally be considered more attractive to an acquirer than Firstar, due to a stronger presence in urban areas.

But Ms. Adair said Canadian banks might regard Firstar's agricultural focus as more in keeping with their own.

Will They Go Along?

Nevertheless, she questioned whether Firstar management would go along with a takeover. Insiders held 25% of the stock in Firstar.

Another 40% of the outstanding shares were held by 88 institutional investors, according to published reports.

A spokesman for Firstar, noting that one of the company's objectives is to remain independent, said the company's policy forbids comment on acquisition speculation.

Lofty Goals

The spokeswoman said the company wants "to be an independent regional full-service bank holding company that consistently earns a return on equity in the top quartile of peer bank holding companies."

Firstar has met those objectives, earning $34.5 million or $1.10 a share in the third quarter - a return on equity of 16.5%.

That was up from $31.1 million - 97 cents a share or 15.46% - in in the same period of 1990.

For nine months, the company earned $98.9 million or $3.14 a share, up from $90.2 million or $2.80 a share in 1990.

Better Assets Emerging

Asset quality appears to have improved, too. In the quarter, nonperforming assets were reduced by $10.1 million of $131.6 million - a mere 1.75% of assets.

This was the result of $7 million in sales of real estate and writedowns totaling $2.6 million.

At the same time, according to a report by Thomson, reserves were increased to $149 million, or 113% of nonperforming assets.

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