Mercantile of St. Louis to Take $134M Hit for Merger, Card Sale

Mercantile Bancorp. of St. Louis plans to take charges totaling $134 million against its third-quarter earnings.

The charges are related to Mercantile's July acquisition of Roosevelt Financial Group and the sale of its money-losing credit card portfolio.

The charges were larger than many had predicted.

Still, Edward Jones analyst Michael Ancell said taking them in the third quarter may mean better results for St. Louis-based Mercantile in 1998. Wall Street's consensus earnings estimates for the company "may be heading up," he said.

Mr. Ancell said Mercantile is ahead of schedule integrating two large in-market mergers: those of Roosevelt and of Mark Twain Bancshares. With those two companies folded in by 1998, Mr. Ancell said, Mercantile will be able to focus on additional cost savings and revenue growth.

For this year, the charges at $30 billion-asset Mercantile represent 69 cents a share against third-quarter earnings. The company had been expected to earn $1.06 per share in the third quarter, according to First Call, compared with $1.05 a year earlier.

Mercantile said it would take a pretax charge of $84 million, or 44 cents per share, in connection with its acquisition of Roosevelt, a $7.3 billion-asset thrift. The charge represents severance payouts, and equipment writedowns, and the cost of closing 44 of Roosevelt's 83 branches. Mercantile had initially estimated a charge of about $45 million to account for the Roosevelt deal.

Mercantile also announced that in the third quarter it would take a $50 million pretax charge-25 cents per share-associated with the sale of $420 million in credit card receivables.

The portfolio, which represented 35% of Mercantile's managed card receivables, was related to the disbanded partnership with Southwestern Bell. Mercantile first announced problems with the card, which was marketed through the regional telephone company, in the first quarter of 1996.

Mercantile ended its relationship with Southwestern Bell late last year after deciding it was losing too much money on the card. It has just sold the remaining portfolio at a discount to Direct Merchants Bank, a subsidiary of Metris Cos. of St. Louis Park, Minn.

"Both events are expected to enhance Mercantile's future financial performance, beginning in the fourth quarter of 1997," chairman and chief executive officer Thomas H. Jacobsen said in a statement.

Mercantile also plans to sell $100 million of card receivables formerly held by Roosevelt, but officials said no deal has been reached to do so. The accounts are outside Mercantile's five-state banking territory in Missouri, Iowa, Illinois, Arkansas, and Kansas.

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