Milwaukee-based Marshall & Ilsley Corp. is strengthening its position in the upper Midwest with its acquisition of National City Bancorp, which is headquartered in Minneapolis. National City, with assets of $1.2 billion, is a heavy lender to businesses in the region.

In fact, according to Sheshunoff Information Services/Thomson Financial, National City had the highest percentage of commercial loans to assets of any bank in the nation at the end of last September. That, plus relatively poor returns, discouraged investors and its stock performed well below other bank stocks and the overall market for the past five years. Its return on common equity last year was a mere 11.38%, about 60% below the industry average.

The acquisition, however, was an efficient way for M&I to get a much bigger footprint in the Minneapolis market.

"We’re beefing up our position in Minneapolis," said Michael Hatfield, senior vice president and secretary of M&I.

If there ever is a good time to enter the Twin Cities market, this is probably it, says Jon G. Arfstrom, an analyst with Dain Rauscher Wessels in Minneapolis. The Minneapolis area is exceptionally difficult for a newcomer to crack because of the overwhelming position of Wells Fargo & Co. (formerly Norwest Corp.) and U.S. Bancorp in the region. The opportunity is relatively good now, Arfstrom says, because of Norwest’s fairly recent merger with San Francisco-based Wells, and the recent merger of U.S. Bancorp with Firstar.

M&I paid a premium of more than 50% above National City’s market value, but the deal should not be hard to make accretive almost immediately. M&I’s stock sells at a far higher multiple, and simply leveraging National City’s 13.8% of equity base can go a long way.


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