Few companies have seen so many giants try to poach on their territory in the past year as Old Kent Financial Corp. has.
Bank One Corp., National City Corp., and Huntington Bancshares have all set up shop in the Grand Rapids, Mich., company's backyard. And Detroit- based giant Comerica Inc. and National Australia Bank Ltd.'s Michigan National Corp. are old foes.
How does a $15.4 billion bank like Old Kent survive in a land of giants? By staking claims on its rivals' turf.
On Oct. 1 the company completed its $400 million acquisition of First Evergreen Corp., a $1.9 billion bank based in Evergreen Park, Ill. It was Old Kent's biggest deal to date and doubled its market share in the Chicago area, the home of Bank One.
"To maintain your independence these days you've got to produce double- digit growth," David J. Wagner, chairman and chief executive of Old Kent, said in an interview Tuesday. "If you can do it without acquisitions, great. But I don't think anyone can."
More out-of-state deals could be on the way for Old Kent, the fourth- largest bank operating in Michigan and the second-largest headquartered there. In the summer the company bid for Banc One's Indianapolis branches, which were sold to Union Planters Corp. Mr. Wagner said he still seeks an entry into that city "if there was a good way to get there."
Mr. Wagner is the amiable face of a company that aggressively defends its independence, a company that is determined to prove there is a place for the kind of locally controlled, midsize regional bank that many on Wall Street are sure is headed for extinction.
Old Kent's chief selling point is that it relentlessly produces steady earnings. It claims 39 consecutive years of earnings and dividend growth. On Wednesday its shares started trading on the New York Stock Exchange as the company seeks additional investors and increased coverage by Wall Street's investment banks.
Analysts at Merrill Lynch & Co. praise Old Kent for its "fortress-like balance sheet" and for management spending heavily to make the bank less reliant on traditional business for earnings. Fee-generating businesses such as insurance and mortgage banking contribute 40% of the company's revenues, a mix analysts like.
They pitch Old Kent as a "defensive stock, which may become increasingly important given the late economic stage."
But the cost of all this buying, Warburg Dillon Read analysts say, is that Old Kent's expenses have outpaced revenue growth every year since 1995, though they say that may change this year. With an efficiency ratio of 61.6%, Old Kent ranks 37th among the top 50 banking companies, according to Keefe, Bruyette & Woods Inc.
Making the First Evergreen purchase pay off for shareholders is the big test facing Mr. Wagner and Old Kent. Merrill Lynch called First Evergreen a "moribund franchise" with bloated costs in need of cutting. Old Kent officials wasted no time; one month after the deal closed they told 30% of First Evergreen's employees that they would lose their jobs at yearend.
Assuming Mr. Wagner makes no big mistakes in his latest, biggest deal and maintains Old Kent's double-digit growth rate, investment bankers say it's likely the board, which has strong west Michigan roots, will let him continue his growth strategy rather than sell the company.
Old Kent directors include top executives from such big Grand Rapids- based companies as Amway Corp., retailer Meijer Inc., and office furniture maker Steelcase Inc. "They really like having their own bank in town," said a Chicago investment banker. "I suspect they'll be among the last to sell."