The midwestern merger movement gained momentum Monday as Mercantile Bancorp. announced a $1.1 billion agreement with Roosevelt Financial Group, leaving market observers wondering which thrift company might be the next target.

"We are seeing consolidation in the Midwest, in regions that are over- banked," said David Hochstim, an analyst with Bear, Stearns & Co.

He said $9 billion-asset Roosevelt, parent of Roosevelt Bank FSB, will have a "significant" impact on Mercantile's operations and market share in the St. Louis area, "but that is only one deal."

Mr. Hochstim and others named $1.1 billion-asset Jefferson Bancorp, like Mercantile and Roosevelt based in St. Louis, and $14 billion-asset Charter One Financial Inc. of Cleveland, as prime candidates for takeover.

Last month, Standard Federal Bank of Troy, Mich., was the first to topple when it agreed to be acquired by ABN Amro of the Netherlands for $1.9 billion.

Two factors have accelerated the trend, analysts said. One is the effort by thrifts to become more bank-like. The other is compliance with federal legislation to recapitalize the Savings Association Insurance Fund, which cut into financial institution earnings last quarter.

"You will see the thrift industry consolidate rapidly," said analyst Joseph A. Stieven of Stifel, Nicolaus & Co.

For Roosevelt Financial Group, Mercantile got what analysts called "the high end" of a fair price. At 1.99 times Roosevelt's book value, the premium falls below the 2.6 that ABN Amro will pay for Standard Federal, when goodwill is factored in.

"We think it is a great combination with real value, and the key word here is value," said Thomas H. Jacobsen, Mercantile's chairman, president, and chief executive officer.

When the transaction is completed, which Mercantile expects will be in the third quarter of 1997, the bank will claim to be No. 1 in deposits in both St. Louis and Missouri, pulling ahead of NationsBank Corp., which is set to acquire St. Louis-based Boatmen's Bancshares on Jan. 7.

Mercantile's post-merger assets would be $30 billion, deposits $22 billion, and branches would total 559 in Missouri and downstate Illinois.

"What it means for the St. Louis market is that you now have two big gorillas in the city, which I guess is better than one," said Michael Ancell, an analyst with Edward D. Jones. "This could mean more keen competition, and as Mercantile gets stronger, there will be more."

However, the deal likely makes Mercantile more attractive to an out-of- state buyer such as First Chicago Corp., Banc One Corp., or First Union Corp., analysts said.

Mercantile said it will cut 37% of Roosevelt's overhead by 1999, saving $39.5 million on a pretax basis, in part by closing 50 overlapping branches. Roosevelt has 83 branches, while Mercantile has 476.

The $18 billion-asset Mercantile would not say how many jobs would be eliminated in the process.

Mercantile expects to take an after-tax, merger-related charge of $25 million to $30 million in the second quarter.

The deal price equals $21.40 per share. Mercantile also said it plans to repurchase up to seven million shares of common stock.

The bank said it began talks with Stanley J. Bradshaw, Roosevelt's chairman, president, and CEO, several months ago and tried to close the deal as quickly as possible.

Mr. Bradshaw is to stay with the combined company after the acquisition, serve on Mercantile's board, and will lead the mortgage operations.

Mercantile' share price was down $1 Monday, to $49.75. Roosevelt ended the day up $2.39, to $20.52.

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