Ohio Thrift's Deal Seen as Entry to Auto Finance

Charter One Financial Inc. will make a first foray into auto finance with its anticipated purchase of $4 billion-asset RCSB Financial Inc., Rochester, N.Y.

RCSB's expertise-it has $1.1 billion of auto loans-could be a big plus for Charter One's plan to be a banker to middle-income midwesterners, said analyst R. Jay Tejera of Dain Bosworth Inc., Minneapolis.

Americans take out more auto loans than any other kind of loan except on credit cards. That makes auto finance critical to Charter One's consumer banking strategy, Mr. Tejera said. The Cleveland thrift already offers two other consumer staples-checking accounts and mortgages.

Like another large midwestern thrift, TCF Financial Corp., Minneapolis, $13.9 billion-asset Charter One is trying to make up for the thin margins of its traditional mortgage business by adding more profitable business lines-and aggressively selling these new products to their customers. (TCF converted to a bank charter this year.)

To reduce funding costs, these thrifts have added checking accounts. And to boost yields, they've added consumer loans, such as home equity credits.

Both institutions also have been avid acquirers. Charter One has done 15 deals since 1981, going out-of-state for the first time in 1995 when it bought FirstFed Michigan Corp., Detroit.

That deal has been seen as a big success; Charter One has used FirstFed's extensive branch network to sell its checking accounts and consumer loans. Analysts said they're confident the New York State expansion will go just as well.

Auto finance is a tough, thin-margin business, but Charter One is well- positioned to compete because it's a low-cost operator, Mr. Tejera said.

The thrift has used that advantage to make money in home loans, where competition from Fannie Mae and Freddie Mac, the secondary market agencies, also has shrunk margins.

Analysts said RCSB Financial complements Charter One in other important ways, too.

For one, RCSB is adept at generating the low-cost savings and checking deposits Charter One likes, said Michael M. Moran of Roney & Co., Detroit.

RCSB's deposit share is No. 2 in Rochester and No. 5 in Buffalo, Mr. Moran said.

For another, the upstate New York market has plenty of the middle- and lower-middle-class customers Charter One wants, said Mr. Tejera of Dain Bosworth.

These customers make more than the median national income; they have lower bankruptcy rates, higher debt repayment, stable communities, and strong brand loyalties, he said.

Mr. Tejera said he expects Charter One to do more deals in the Great Lakes states.

For RCSB, Charter One will pay about $635 million in a stock swap. That is twice book value and 16 times RCSB's earnings in the past 12 months.

The deal, which will likely close in the fourth quarter, is expected to increase Charter One's earnings 3% to 5% within a year of closing.

Charter One angled for a much larger institution last year-Standard Federal Bancorp, Troy, Mich., but lost out to ABN Amro, which paid $1.9 billion for Michigan's largest thrift. u

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