St. Paul Bancorp of Chicago is under pressure from investors to improve its performance or consider selling out.

Harry V. Keefe, St. Paul's third-largest shareholder, has demanded a meeting with the thrift company's executives.

"They have a good franchise," said Mr. Keefe, who manages two hedge funds that own a combined 3% of St. Paul. "But they don't have products, and products are the name of the game."

Tensions had been building for months between the thrift and large shareholders, and emerged during a conference call that covered second- quarter results. St. Paul, which has $5.3 billion of assets, earned $12.5 million, virtually no change from a year earlier.

Reported returns on assets, 1.07%, and equity, 11.49%, were both down.

Unhappy investors asked St. Paul chief executive officer Joseph C. Scully if he would consider a sale.

"It's a process we go through regularly with the board," Mr. Scully responded. "You always look at what you are, as opposed to what you can be."

Shareholders say they are losing patience with the thrift, which has 65 offices around Chicago. They fault St. Paul for relying too heavily on plain-vanilla mortgage lending.

"The company is a long-term underpeformer and its operating expenses are at a level very hard to justify," said John O'Connor, director of investment research at Fort Washington Investment Advisors Inc., Cincinnati. "The company needs to perform quickly or it needs to sell."

Mr. Keefe, chairman of Keefe Managers of New York, said he is most distressed with the thrift's unwillingness to lay out a specific plan to improve profitability. Mr. Scully has set a 15% target for return on equity but said the thrift would need three or four years to get there.

"The company continues to say it is staying the course, but investors say staying the course with very mediocre returns is not acceptable," said Joseph Stieven, an analyst with Stifel, Nicolaus & Co., St. Louis.

With Banc One Corp. and NationsBank Corp. taking aim at the Chicago market through acquisitions, St. Paul will find it increasingly difficult to improve, Mr. Keefe said.

"This is the Little League against the New York Yankees," he added.

St. Paul issued a statement last Friday saying it was "very sensitive to its fiduciary responsibility to shareholders." It said it has logged an average annual return to shareholders of 20% since it went public 11 years ago.

"Management and the board of directors have regularly and consistently evaluated the means by which shareholder value is being maximized," the company added.

On July 1, St. Paul acquired $705 million-asset Beverly Bancorp of Chicago. St. Paul executives said they want to use Beverly's commercial banking expertise to help develop new products. But that does not fly with Mr. Keefe, who said a small commercial bank would not be the thrift's salvation.

In past conference calls Mr. Scully has told investors that he has not received serious takeover offers. But some investors said they believe William A. Cooper, chairman and CEO of TCF Financial Corp., approached St. Paul but was rebuffed by Mr. Scully. TCF declined comment.

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