Executives at Charter One Financial Inc. find their dreams of building one of the nation's largest thrifts colliding with the reality of nightmarishly high merger prices.

People familiar with its plans say the Cleveland-based thrift is looking to nearly double its size this year, to $30 billion. Such growth would make Charter One the nation's fourth-largest thrift and by far the biggest outside California.

Through a series of solid deals, Charter One has grown to $15 billion of assets. It is said to be keen to acquire thrifts in major midwestern cities but won't rule out acquisitions outside the region.

"They want to get to $30 billion quickly," said one person close to Charter One's chairman and chief executive, Charles John "Bud" Koch.

Mr. Koch in a telephone interview acknowledged the company would be interested in expanding to Pittsburgh and Indianapolis, as well as most major cities within its existing territory of Ohio, Michigan, and upstate New York.

But at current prices, he said, this may not be the year to do it.

"If an opportunity comes along, we'll take a look," said Mr. Koch, "but prices being what they are, we'd probably rather not make a deal."

Opportunities to buy at palatable prices are indeed harder to find for companies like Charter One, which has specialized in running a low-cost, low-risk operation and acquiring troubled neighboring thrifts on the cheap.

Analysts say continuing this strategy will be a challenge in a robust economy when there are almost no troubled thrifts left.

"Koch has been one of the best buyers out there," said Fred Cummings, analyst at McDonald & Co., Cleveland. "But pricing for the companies he's traditionally bought has gotten extremely competitive."

In recent months commercial banks have shown they will ante up once- unimaginable prices for thrifts. North Fork Bancorp paid $800 million, or a stunning 4.8 times book value, for New York Bancorp. And just this week Fifth Third Bancorp agreed to pay $914 million, or 3.5 times book, for privately held State Savings Co. of Columbus.

These astronomical prices lead some to question whether companies like Charter One can compete in today's market for acquisitions. Because all major financial institution mergers are paid for in stock, sellers are looking for shares that trade at high multiples to earnings. Charter One trades at 14.7 times estimated 1998 earnings-good for a thrift but low compared with a commercial bank.

Meanwhile, Charter One and other thrifts are facing a threat to profits this year.

Right now, the narrow spread between short-term and long-term interest rates means the source of profit margins for thrift operators is practically non-existent. Should the yield curve remain tabletop flat, earnings could shrink and stock values slip. Important management talent could also leave the business.

Mr. Koch says his company will "retard asset growth" this year and "step up loan sales." But if earnings estimates and stock prices for the industry come down, he might also find it a great chance to bulk up his company again via acquisitions.

The thrift made several small acquisitions in the 1980s and 1990s before doubling its asset size with its 1996 purchase of FirstFed Michigan Corp., a troubled thrift based in Detroit.

Then, last May it agreed to buy $4.1 billion-asset RCSB Financial Inc. of Rochester, N.Y., for $648 million.

In the fall it looked very closely at Onbancorp Inc., a $5.5 billion thrift based in Syracuse, but declined to make an offer for the company that eventually sold for $872 to First Empire State Corp., people familiar with the situation say.

This aggressive acquisition strategy has won Wall Street's applause. Nearly every analyst who follows Charter One's stock strongly recommends it to investors.

Besides keeping Wall Street happy, people close to Mr. Koch say he may choose to expand aggressively because he senses he has the chance to build a franchise similar to his friend, Kerry Killinger.

Mr. Killinger, the chief executive of Washington Mutual Inc., Seattle, has made two huge acquisitions in the last two years that have stretched his thrift company along the entire West Coast.

"Killinger is Koch's buddy; they talk all the time," said a person close to Mr. Koch. "Killinger has done a great job building his company and Koch has certainly noticed. There's room for two of them to dominate the thrift business, and Koch knows if he's going to compete with Killinger, he's got to make the big deal."

While Mr. Koch says he would like to stay close to his company's midwestern roots, analysts observe that Charter One already has stretched the definition of "Midwest" by acquiring an upstate New York thrift. And he already has something of a national franchise thanks to Charter One's sizable mortgage banking business that originates loans well into the Middle Atlantic states.

But to expand means finding companies willing to sell at prices buyers are willing to pay. And until prices calm down because thrift executives decide en masse to sell, Mr. Koch and scores of acquisitive-minded bankers like him might find themselves relegated to the sidelines.

"You have to remember that buyers don't control the timing of deals," Mr. Koch said. "Sellers control it all."

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