Metropolitan Financial Corp.'s acquisition of National City Bancorp. will be dilutive, but the company insists the deal will provide the firepower it needs to double in size within three years.

By picking up the Minneapolis-based bank for about $106 million in stock, Metropolitan gains excess capital that its says it will use to buy a major thrift this year.

National City's 15% ratio of equity to assets is more than double the required 7% regulatory minimum.

"The additional capital positions Metropolitan to take advantage of ongoing industry consolidation and double its current size" over the next 12 to 36 months," chairman and chief executive Norman M. Jones said in a statement.

Investors Cautious

Metropolitan will have $6.6 billion in assets after all its pending acquisitions are completed. National City has $549 million in assets.

Investors reacted cautiously to the deal, which was announced after the markets closed on Wednesday.

Metropolitan's stock was trading late Thursday at $13.625, down 25 cents. National City's share prices catapulted $5.25, or about 40%, to $17.50.

Under the terms of the deal, National City stockholders will receive 1.43 shares of Metropolitan Financial for each share held. Analysts estimate the deal will dilute Metropolitan's share earnings by about 5% next year.

The purchase price represents about 1.29 times National City's tangible book value. The acquisition is believed to be one of only six instances in which a thrift has taken over a bank.

String of Takeovers

Metropolitan has grown fast, making 27 acquisitions in the past decade. The company recently moved its headquarters to Minneapolis from Fargo, N.D.

Ben Crabtree, an analyst at Dain Bosworth Inc., Minneapolis, said the additional capital Metropolitan receives by acquiring National City would allow it to spend as much as $800 million to buy another thrift.

He and other analysts say acquisition targets would likely have assets from $700 million to $1 million and be in one of the Midwest states where Metropolitan already has a presence: Minnesota, Nebraska, Wisconsin, lowa, and the Dakotas.

A Presence in Twin Cities

Metropolitan has 15 branches in Minneapolis-st. Paul and National City has three.

Although Metropolitan controls less than 5% of the deposit market in the Twin Cities area, it is one of the largest originators of residential mortgage loans through its Edina Realty Inc. unit.

Metropolitan earned $127.4 million in the first nine months of this year, representing a 1.48% return on assets. "These guys run a clean, traditional thrift business," said Douglas Eayrs, an analyst at John G. Kinnard & Co., a regional brokerage firm.

National City is controlled by the Andreas family, which is closely associated with Archer Daniels Midland Co., the big agricultural products concern.

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