More and more thrifts are looking for ways to become more like commercial banks, including acquiring commercial banks or their branches or being bought by them. Some, however, are taking a third, slower approach, through growing commercial loans internally.

Each approach has its risks. But many thrift executives see no alternative to shedding their current profiles because, heavily invested in mortgages, their interest rate margins are thin and their stocks are particularly vulnerable to interest rate swings.

New York-based Dime Bancorp's planned merger with Hudson United Bancorp of Mahwah, N.J., is an example of a thrift that is selling out to a bank. Though Dime, with $20 billion in assets, is more than twice Hudson's size, the companies describe the pending deal as a merger of equals.

Though Hudson's shareholders will own less than half the company, it will name 12 of the 13 directors of the holding company being set up to acquire the two units. Lawrence J. Toal, Dime's chairman and chief executive officer, will head the proposed new holding company, Dime United Bancorp. But it already has been agreed that Hudson's 51-year-old CEO, Kenneth T. Nielson, would become chairman and CEO on Jan. 1, 2003.

Analysts said Dime's prospects were limited as a thrift, but its link with Hudson improves the outlook. They are said to be looking for a "double dip," where Dime sells out at no premium to Hudson, but with far better expectations that Hudson eventually will sell out at a high premium.

The arithmetic shows progress in movement toward being a commercial bank will come naturally. Some 70% of Dime's loans at yearend 1998 were residential, far higher than the 52% expected after the merger with Hudson, according to Noreen Reilly, an analyst with PaineWebber Inc. in New York. "They just couldn't have done it that quickly on their own. This is a huge bonus for them."

Whether Dime becomes takeover bait depends on "what investors think about it," said Thomas O'Donnell an analyst with Salomon Smith Barney. "They had been the subject of takeover speculation; any company that is well run and has an attractive franchise is going to appear on radar screens."

Meanwhile, the $25 billion-asset Sovereign Bancorp of Wyomissing, Pa., is taking the second approach, buying 278 New England branches being spun off by the pending merger of Fleet Financial Group and BankBoston Corp. The branches have $11.8 billion in assets.

Sovereign accelerated its aggressive commercial bank acquisition strategy in 1998, when it acquired branches spun off by First Union Corp., after the Charlotte, N.C.-based company bought CoreStates Financial Corp. of Philadelphia.

The challenge to Sovereign is to produce enough earnings to finance the costly acquisition. Sovereign chief executive Jay Sidhu is confident that he can, but has said that if investors are not satisfied with Sovereign's performance it could sell out at a premium.

Like Sovereign, Peoples Heritage Financial Group of Portland, Me., this year acquired Banknorth Group Inc., a $4.3 billion-asset Vermont commercial banking company. Its mortgage loans now stand at 25% of its portfolio. But Peoples Heritage's price/earnings ratio, at 11, still lags far below the average Nasdaq bank's 17.8.

For "whatever reason, the thrift's efforts haven't been recognized by the market," said Chad Yonker, an analyst at Fox-Pitt, Kelton. "A lot of it comes down to perception."

TCF Financial Corp. of Minneapolis has changed its charter to that of a bank. Its p/e reflects it: at 16.4, it is the highest of a group of thrifts seeking to change their image, which Mr. Yonker has dubbed, "hybrid banks."

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