ST. LOUIS -- Working in the shadow of Missouri's two giant banks, Magna Group Inc. is quietly finding its place as the self-styled bank of the average man.
But as it battles with Boatmen's Bancshares and Mercantile Bancorp., Magna finds itself tagged by investors as an underperformer.
Executives bristle at the notion that the bank of the average man is less than average. "I don't really like the term," said Tom Andes, president and chief operating officer of the $3.8 billion-asset institution.
Unfavorable Financials
Still, it is difficult to look at the financials and not see a company whose profitability lags behind its Midwestern peers and whose credit problems have been deeper.
The price-to-book ratio of the company's stock recently surged on published speculation that the bank might be acquired, but dropped back to the mid-130% range this week.
But that measure, to single out just one, is still well below the 179% average of its peers.
Analysis blame soft earnings and said the 1991 acquisition of Landmark Bancshares - which doubled Magna's size - produced credit quality problems the bank is still dealing with.
Slowly Improving
Joseph Stieven, senior bank analyst at Stifel, Nicolaus & Co., St. Louis, says Magna is slowly headed toward improved profitability that will raise its stock price. "I think they're moving in that direction, but I can't say how fast that will occur," he said.
Mr. Andes says investors are looking for more signs of progress. "I think they're just going to wait and see more quarters," he said. "We think we've done what we said we were going to do, and we'll just keep doing it."
Clearly, the bank is taking the long view. With 86 branches mostly in the four Missouri and Illinois counties that collar St. Louis, Magna has become the leading suburban bank in a brutally competitive market.
"They're the closer-to-home bank, and that is their franchise," said Jim Weber, bank analyst at A.G. Edwards & Sons, St. Louis. "They don't really try to compete with Boatmen's or Mercantile for the large loans. They are focusing on the small to middle market."
Clearly, all three banks want as much of the middle market as possible. It is not unusual for their loan promotions to run back to back on local television stations.
Takeover Expectations
Most observers expect Magna to be taken over eventually. But such a deal could be three years or more away.
Boatmen's, which is also based in St. Louis and has $25 billion of assets, cannot buy Magna, because of antitrust laws.
Other in-market competitors, including $10 billion-asset Mercantile, are not known to be interested. And restrictive Missouri laws preclude such active out-of-state acquirers as Banc One Corp.
In fact, Mr. Stieven believes that if Magna really wanted to sell out, it would have kept Landmark's bank charter in Illinois, which has no interstate restrictions on expansion. His advice: "I think that, long term, they will be bought out. But it is a mistake for anybody to buy their stock on that basis alone."
Scouting Acquisitions
For now, though, Magna chairman William Badgley, who turns 64 in January, says the bank plans to remain independent and is looking at up to six in-market deals at could add $750 million in assets to the bank in 1994. (He declined to identify the institutions).
In an interview, he did not rule out the possibility of another merger of equals like the Landmark deal.
However, analysts question the likelihood of such a deal, noting that recent transactions here have been too pricey and that Magna's stock is not considered strong currency.
For instance, Magna's fiercest direct competitor, United Postal, was recently sold to Mercantile for 1.9 times United's book value, or $177 million.
Mr. Badgley says he was interested in the $1.3 billion-asset thrift, but concedes: "Pricewise, it was beyond our capabilities."
Because the bank is just now working through the merger of equals, few expect a repeat of such a deal.
While the 1991 deal has already netted an estimated $20 million in savings a year ahead of schedule, it also revealed some unexpected blots on the balance sheet of both banks.
"There were some credit quality surprises, but probably as many in Magna as in Landmark," confessed Mr. Badgley. "It wasn't easy, but I feel like we've really cleaned house in both companies."
Observers give Magna credit for averaging a 4% quarterly reduction in problem assets, because of pressure from regulators and as well as the need to satisfy investors.
"They have shown a commitment to cleaning up their problems, and they are taking some steps toward building a stronger franchise," said one national money manager who watches the stock.
|Too Good to Pass Up'
"Longer term, they are proving that they have a franchise too good for an outside competitor to pass up."
At the bank's suburban Brentwood headquarters, executives today are focused on building a stronger and more profitable retail bank.
The emphasis has been on bringing new technology into the banks, cross-selling services, and building new lines of business. Most notably, Magna has a new indirect auto loan business that has quickly grown to $10 million a month in volume.
Recently the bank also acquired a subsidiary, MGI, that sells investment products through Magna's branch system. Beyond supplying mutual funds, stocks, and bonds to their own customers, executives see the opportunity to generate fee income by marketing the service to scores of correspondent banks.
Younger Customers Sought
Longer term, however, the bank is focused on expanding its customer base, which has been heavy on the over-55 crowd. The demographic target group is those from ages 30 to 45.
"We're strategically going after a younger market," said executive vice president Gary Hemmer, who oversees the bank's retail system. "We're picking up more and more business from them."
Although Magna already has a saturated branch system through the St. Louis area, officials are rethinking the design of their branches in an effort to sell more services and investments to customers.
In a bid to win new customers, the company is planning branches inside Schnuck's, one of the area's leading grocery store chains.
Such branches would cost about $250,000 each to build. That's a fraction of the cost of a traditional full-service branch.
Going Where the People Are
Besides, said Mr. Andes, Magna's president, a visit one morning to a suburban grocery store convinced him that a bank inside would draw more customers than even an adjacent branch.
"We went into the store, and it was full of people. We went to the lobbies of our competitors' banks in the parking lot, and no one was there," he said.
"We want to go where the people are."
