A Minnesota community bank seeking to expand its correspondent services has partnered with an Alabama-based regional that has the goods.

St. Paul-based Liberty Bancshares will market Compass Bancshares' products in the upper Midwest. Liberty, which has $245 million of assets, created a correspondent banking department a year ago after a local correspondent provider, American National Bank of St. Paul, was purchased by Milwaukee's Firstar Corp.

Through the new program, Liberty's small bank clients will be able to buy bonds from $12.1 billion-asset Compass, using Liberty as a middleman to settle accounts.

Liberty will also market Compass' related services, such as bond accounting, safekeeping, and regulatory compliance, to the correspondent banks. In exchange for the referrals, Liberty will receive fees from the regional bank. However, Liberty will not become involved in the actual bond sales or trading with Birmingham-based Compass.

"Compass has the expertise on the trading side and the sales side, and that's where that belongs," said James A. Russell, vice president in charge of correspondent banking at Liberty.

Until now, the main focus of Liberty's correspondent department had been purchasing loan participations from smaller institutions. The bank also provides financing for bank ownership and offers private banking services for owners and management of other small banks.

Liberty started the department under Mr. Russell, a former correspondent banker from American National, after Firstar transferred all operations to Milwaukee. Now Liberty is hoping to take advantage of pullbacks by other major competitors, including Firstar, to expand its market and serve banks in other parts of the upper Midwest.

"As Firstar has pulled back from providing services, they have caused a certain amount of dissatisfaction among their customers," Mr. Russell said. "Liberty believes there's an opportunity ... in the small end of the correspondent banking market."

Firstar officials, however, deny that they are cutting back on correspondent services. On the contrary, the bank is planning to "substantially expand this business," said Mark P. Reinemann, first vice president and group head of correspondent banking at Firstar. In fact, he noted, Liberty itself is a Firstar customer.

"Anytime a bank buys another bank there are changes," Mr. Reinemann said. "As the styles and the cultures merge, it might be perceived that those are cutbacks-but they definitely are not."

Liberty has only a handful of correspondent customers, but Mr. Russell said he hopes to develop business with at least 50 banks in Minnesota, Wisconsin, and perhaps the Dakotas over the next 12 months. Liberty also hopes to develop correspondent balances with many of its bank customers in the region.

Mr. Russell said the bank hopes to generate 10% of its loan volume in the next 12 months through its correspondent department. But he said he wasn't sure how much fee income officials are targeting.

"We're just getting started," he said. "We're going to try to give a more personalized service to bankers, and at the same time provide as many products as we can."

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