Firstar Corp.'s recent deal to purchase Mercantile Bancorp. is likely to result in the sale or relocation of more than $900 million of the merged company's Iowa deposits.

An Iowa law prohibits banks from pushing deposits past 10% of the state total through acquisitions.

Milwaukee-based Firstar may also have to make divestitures in two Iowa cities-Dubuque and Waterloo-and in one small town, Mount Pleasant, to meet federal Department of Justice antitrust concerns.

The upshot may be that the new Firstar does not overtake Wells Fargo & Co. as the No. 1 bank in the state. San Francisco-based Wells has long been the largest bank in Iowa, with $4.76 billion, or 11.4% of the state's deposits. Wells went above the deposit cap by accumulating deposits within the state, not by buying other banks.

Firstar, which agreed to buy St. Louis-based Mercantile last Friday, would not comment on possible divestitures. Company officials said they were a few weeks away from making decisions on Iowa.

Among the 12 states where Firstar and Mercantile have banks, the most overlap is in Iowa, where the combined company would have 129 branches that hold $5.07 billion, or 12.19% of the state's total deposits, according to Sheshunoff Information Services.

Steven Moser, Iowa's deputy superintendent of banking, said the deposit- cap law does not give state regulators much flexibility.

Wells has for years fought the deposit cap in Iowa, calling it antiquated and anticompetitive. But Firstar and Wells are not likely to get a reprieve anytime soon. The Iowa legislature, the General Assembly, ended its 1999 session in April.

That does not mean Firstar would be required to sell all of its Iowa deposits. Some sources suggested the company could move as much as half of those deposits, mostly in the form of trust and commercial funds, to Firstar operations in other states.

That would apparently be allowed under the law, Mr. Moser said. "Obviously, the applicants have the opportunity to manipulate their balance sheet," he added.

Two financial services companies have said they would be interested in buying divested deposits.

"We always have an interest in acquisition opportunities that make sense," said Steven Schuler, chief financial officer of Des Moines-based Brenton Banks Inc., which has $1.9 billion of assets.

Mr. Schuler said Brenton is most interested in urban markets. Dubuque and Waterloo would fit that description. Mount Pleasant is a small, rural town in southeast Iowa, where the new Firstar would hold more than 70% of deposits.

Commercial Federal Corp. of Omaha, which has $12 billion of assets, would also be interested in buying deposits, said spokesman Larry Goddard.

Assuming Firstar's $10 billion purchase of Mercantile closes in the fourth quarter as scheduled, Commercial Federal would become the third- largest bank in the state, and Brenton would rank fourth.

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