Firstar Corporation History

Company Perspectives:

Our vision is to be the most respected financial service provider in the markets we serve, consistently delivering solutions that yield exceptional value for our customers. By fulfilling this vision and achieving sound, profitable growth, we will provide our shareholders with a competitive return on their investment and assure our future as one of the nation's most successful financial institutions. This is our promise to our customers: to be the place they can go for financial solutions that help them achieve their personal and professional goals. Fulfilling this promise is a tall order, but Firstar has positioned itself to meet it. We know that delivering on our promise will help our other constituencies&mdash⁄areholders, employees, and communities--'get there.' We also believe that delivering on our promise will assure our future as one of the nation's most successful financial institutions. Key Dates:

Key Dates:

1853:

Farmers and Millers Bank is founded.

1863:

The federal government passes the National Bank Act; the bank applies for a charter and is renamed First National Bank of Milwaukee.

1894:

First National Bank of Milwaukee merges with Merchants Exchange Bank and founds First Wisconsin Trust Company.

1919:

The bank merges with Wisconsin National Bank and changes its name to First Wisconsin National Bank of Milwaukee.

1929:

First Wisconsin National is placed administratively under Wisconsin Bankshares Corporation.

1958:

Wisconsin Bankshares establishes Southgate National Bank of Milwaukee.

1960:

The bank is renamed First Wisconsin Bankshares Corporation.

1974:

The bank is renamed First Wisconsin Corporation.

1987:

First Wisconsin makes acquisitions in Illinois and Minnesota.

1989:

The bank is renamed Firstar Corporation.

1995:

Firstar undertakes its restructuring effort, Firstar Forward.

1998:

Firstar merges with Star Banc.

Company History:

Firstar Corporation is among the leading bank corporations in the United States, with a particularly dominant market share in the Midwest. It oversees over 1,200 branch banks and in addition to its traditional consumer and business banking services offers a variety of financial services including trust and investment management, retail brokerage, and title and business insurance. Acquisitions and mergers with other banks, often resulting in name changes, have dominated much of Firstar's history. Founded in 1853 as a small, store-front operation called Farmers and Millers Bank, by 1919, it was known as First Wisconsin National Bank of Milwaukee, and in 1929 was placed administratively under the bank holding company Wisconsin Bankshares Corporation, which itself would be renamed First Wisconsin Bankshares Corporation in 1960, First Wisconsin Corporation in 1974, and Firstar Corporation in 1989. Aided by relaxed government regulations on interstate banking, Firstar had by 1994 become a regional power in the Midwest, boasting some 200 offices in Wisconsin, Illinois, Minnesota, and Iowa with a small number of offices in Arizona and Florida. In 1998 Firstar merged with the holding company Star Banc Corporation to create a new Firstar, a much larger concern with a stronger presence throughout the Midwest.

The First Half Century: 1853-1900

When Wisconsin achieved statehood in 1848, most of its settlers lived in the state's southwestern corner, where large deposits of lead had been discovered. In the southeast, however, settlers had formed a small village on Lake Michigan at the site of an Indian trading post. Called Milwaukee, the village experienced rapid population growth, expanding from fewer than a dozen settlers in the early 1830s to some 25,000 in 1853. New manufacturing concerns, including those for machinery, shoes, and beer, sprung up, and soon the city became a center for farm products, in particular wheat and hogs. A city bulletin during this time, however, pointed out that 'our moneyed facilities are by no means commensurate with our needs.'

During this period of great expansion and high hopes, Farmers and Millers Bank, the predecessor of Firstar, was organized. Founded by six stockholders and six bondsmen--led by Newcomb Cleveland, a Milwaukee businessman--the bank opened its doors for business on June 2, 1853. With total capital of $50,000, the bank initially operated out of a rented storefront located on East Water Street that was equipped with a newly installed 'strong box.' Four years later, the bank moved around the corner to a new location on Wisconsin Avenue.

With Cleveland as its first president, Farmers and Millers Bank helped provide financial stability for the new city. The 1850s were a difficult decade for banks, especially during the financial panic of 1857, which began after railroads defaulted on their bonds. Soon afterward, the Civil War brought great currency fluctuations, and, in 1861, bank riots occurred in Milwaukee. Despite these challenges, Farmers and Millers Bank, according to one history of the city, had quickly become 'a power financially, as well as a general favorite with the public.'

The bank underwent its first reorganization in 1863, when the federal government passed the National Bank Act. The Act provided for a national currency and implemented guidelines for establishing a network of federally supervised national banks, measures, it was hoped, that would calm the troubled financial times. Farmers and Millers, the first bank in Wisconsin to apply for a national charter, became a national bank on September 19th of that year and was renamed First National Bank of Milwaukee.

After the Civil War, Milwaukee became known increasingly as an industrial center. Its population also continued to grow rapidly, in part from an influx of Italian and Polish immigrants in the 1890s. With the growth in the city's industry and population came a corresponding rise in First National's assets, from just $1.5 million in 1873 to more than $29 million in 1913. Part of this increase was the result of its 1894 merger with Merchants Exchange Bank, which had been founded in 1870 as Home Savings Bank and had undergone two previous mergers before becoming part of First National. Growth also prompted First National to seek larger facilities. Construction began on a 16-story building on the corner of North Water Street and East Mason in 1912. Opened two years later, the new facility would house the bank's main office until 1973.

It was not long before the bank made another huge jump in assets, this time through a merger with Wisconsin National Bank, which had been formed in 1892. Effective on June 30, 1919, the merger created an immense new organization, First Wisconsin National Bank of Milwaukee, with assets surpassing $100 million. This new bank then set about expanding across the city, in part through opening up branch locations, and, in 1928, it merged with yet another institution, Second Ward Savings Bank, boosting assets to $177 million.

The following year, the directors of the bank founded Wisconsin Bankshares Corporation, a bank holding company (defined as a corporation owning at least two banks), which became the owner of First Wisconsin. This administrative change allowed for greater legal flexibility in acquisitions, and, by the end of 1930, Wisconsin Bankshares would acquire 23 additional Wisconsin financial institutions--such as Union National Bank in Eau Claire and First National Bank in Madison--giving the company a total of 16 national banks, 27 state banks, three trust companies, and seven other companies. All of Wisconsin Bankshares' acquisitions maintained their original officers and board of directors, and First Wisconsin remained the lead bank.

When the stock market crashed in 1929, sending the financial industry into a tailspin, Wisconsin Bankshares was in a strong position and, unlike many of its competitors, was able to maintain healthy growth throughout 1930 and 1931. As the Depression dragged on, however, the company would find its fortunes diminished. Many banks, in an effort to become more efficient and avoid closure, were merging, and Wisconsin Bankshares soon found itself forced down the same path. By the end of 1932, it had reduced the number of national banks under its control to 11 and the number of state banks to 25. One piece of good news came from Wisconsin's state government, which responded to the crisis by lifting the freeze on branch banking, in effect since 1909.

In the early months of 1933, the financial situation deteriorated even further as nervous depositors began to pull their money out of banks. On March 5, 1933, with financial collapse imminent, the newly elected U.S. President Franklin D. Roosevelt had little choice but to close all banks nationally for a 'bank holiday.' Lasting ten days, this cooling-off period gave federal officials time to investigate banks and helped restore some confidence among consumers. Wisconsin Bankshares, meanwhile, continued efforts toward greater efficiency. It transformed some of its banks into branches of First Wisconsin, for example, eliminating their boards and reducing the number of officers in the process. Bookkeeping was also consolidated. The company, moreover, began to sell off some of its financial institutions, and, by the end of 1944, with World War II nearing an end, Wisconsin Bankshares had been streamlined to just five national banks, in addition to First Wisconsin Trust Company (founded in 1894 and the oldest trust company in the state) and five other institutions. Overall, these moves resulted in a stronger, more financially sound company, which was able to boost its total assets from $301 million in 1931 to $666 million in 1944.

After World War II, Wisconsin Bankshares benefited from a robust economy. Also during this time, however, the state of Wisconsin decided to restore the freeze on branch banking. This move made it difficult for Wisconsin Bankshares to respond to a commercial trend in which shopping centers proliferated, drawing consumers away from the traditional shopping areas where most of the company's banks and branches were located. New regulations imposed by the Bank Holding Company Act of 1956, passed by Congress, also limited the company's flexibility. As a result, Wisconsin Bankshares, the largest bank holding company in the state, was prevented from both setting up branches and acquiring new banks, two of the most effective means of growth. It was, however, able to establish new banks (such as Southgate National Bank of Milwaukee in 1958), a slow and costly process, and to move some of its existing branches to more profitable locations.

In 1960, the company was renamed First Wisconsin Bankshares Corporation. Regulatory barriers, designed to protect small banks and to slow the consolidation of bank assets, would continue to frustrate the company until the late 1960s, when regulations began to be relaxed. In 1967, the company was allowed to acquire State Bank of Waunakee, and, in the next few years, it would start up new banks in such growing markets as Waukesha, West Green Bay, and Mequon. During the early 1970s, First Wisconsin became more involved in banking-related activities, forming, for example, First Wisconsin Financial Corporation (a commercial finance company) and First Wisconsin Mortgage Trust. It also established First Wisconsin International Bank, headquartered in New York. International loans would eventually produce a large percentage of its profits. In 1973, the company became even more prominent in Milwaukee with the completion of its new corporate headquarters, First Wisconsin Center, a 42-story facility near Lake Michigan and the tallest building in the state. The following year, because of its moves toward new types of services, the company decided to change its name to First Wisconsin Corporation.

In the late 1970s, Wisconsin's state government agreed to allow branch banking on a limited basis, giving First Wisconsin additional options for growth. The company quickly took advantage of its new freedom, and, by the mid-1980s, it had opened 19 new branches, expanding its total to 33. The company also continued to acquire existing banks across the state, helping to boost total assets to $4.75 billion in 1982 and $7.1 billion in 1986. During the same period, however, its profitable venture in international loans began to sour, resulting in large write-offs (especially for loans to developing countries) and in a net loss of $49 million in 1987.

Reset on a more conservative, steady course, First Wisconsin was given a boost by a new state law that took effect on January 1, 1987. Reflecting similar changes across the country, the law allowed Wisconsin banks to acquire or be acquired by other banks in eight neighboring states--Illinois, Minnesota, Ohio, Michigan, Iowa, Indiana, Missouri, and Kentucky&mdash′ovided those states made similar laws themselves. First Wisconsin wasted little time in making its first out-of-state purchase, buying DuPage Bank & Trust Co. in Glen Ellyn, Illinois, on April 29, 1987. This was followed by additional purchases in Illinois, Iowa, and Minnesota (in the Twin Cities area), all states contiguous with Wisconsin. Among its most significant acquisitions were Naper Financial Corp. in Illinois (1987), Shelard Bancshares, Inc., in Minnesota (1987), and Banks of Iowa, Inc. (1991). By the end of 1993, total assets had reached $13.79 billion, $9.3 billion of which was generated in the company's home state of Wisconsin. The company's share of bank deposits was 15.6 percent in Wisconsin, 6.7 percent in Iowa, and two percent in Minnesota. In Illinois, where it had about $1 billion in bank deposits, all in the Chicago suburbs, its share was only .55 percent. The company also had three offices in Arizona and two in Florida.

The company became Firstar Corporation in 1989. For the first time neither banking nor Wisconsin was mentioned in its name, reflecting its status as a multistate, diversified financial corporation. The banks themselves were also renamed Firstar, though this did not occur in Wisconsin until 1992. Similarly, its corporate headquarters became Firstar Center.

By this time, Firstar had left its troubles of the mid-1980s far behind, and it was being widely praised for its sound management, led from 1991 by Roger L. Fitzsimonds, chairperson and chief executive officer. In particular, Firstar had made great gains in its fee-generating services--such as credit cards, brokerage, check collection, insurance, and investment management--which tended to be less vulnerable to economic downturns. These services were promoted not only through its numerous branches (some 200 by 1994), but also through more than 1,000 'correspondent banks,' independent banks too small to offer their own fee-based services. At this time, CEO Fitzsimonds maintained in 1993, 'Firstar is not in the banking business. We are in the financial services business. ... We focus on the consumer, small business and commercial middle markets. We also provide operating services to the large corporate segment. There's nothing that we can't evolve to, acquire or change that won't meet these customers' needs.'

On October 18, 1994, Firstar issued 1,801,577 shares of common stock to complete the acquisition of the $423 million First Southeast Banking Corp., a bank holding company for two banks with 23 offices in the Racine/Kenosha area. The company acquired several other banks during the next two years, including American Bancorporation of St. Paul in 1996. With the acquisitions came a management restructuring effort from late 1995 through 1997 that organized operations around business lines rather then geographic regions. This highly publicized effort, known as Firstar Forward, was later described in the press as a fatal step backward; despite its emphasis on efficiency and profitability and the elimination of one-fourth of the company's 10,000 employees, productivity sagged, revenue-growth slowed, and employee turnover increased.

A dynamic new leader for Firstar emerged in 1998, when Star Banc Corp., successor to the First National Bank of Cincinnati, agreed to acquire Firstar for $7.2 billion in stock. Jerry Grundhofer, chairman of Star Banc, was named president and chief executive of the newly merged banks, which opted to retain the Firstar name. Grundhofer, known in the industry as a fierce competitor and effective motivator, was also named to replace Fitzsimonds as chairman when the latter retired. In January 1999, soon after the merger was complete, Forbes named Grundhofer banker of the year for 1998, describing him as 'not your genial sort of boss.' The younger brother of Jack Grundhofer, chairman of U.S. Bancorp, he had taken the helm of Star Banc in 1993 where he instilled an aggressive incentive program that rewarded executives for their roles in increased revenues.

The merger more than doubled Firstar's assets to $38 billion and raised its national ranking to 21st in terms of size. The new Firstar had more than three million customers, 14,000 employees, and 720 branches in Ohio, Indiana, Kentucky, Tennessee, Illinois, Iowa, Wisconsin, Minnesota, Arizona, and Florida. Headquarters were consolidated in Milwaukee, while consumer banking operations remained in Star Banc's hometown of Cincinnati as did the hub of its finance company.

Under Grundhofer, Firstar set out to become a lean banking company that demanded and rewarded sales from employees, and expanded the parameters of traditional banking by installing more branches in supermarkets and corporate facilities, and offering more ATMs and kiosks. The new Firstar hoped to preserve the customer-friendly features of a small bank with the financial clout and convenience of a large bank. To achieve its goal, it implemented such unique policies as paying customers for having to spend too long a time in line. The holding company retained Star Banc's slogan--'a bank without boundaries'&mdash well as its 'five star service guarantee.'

The bank also centralized back-office functions such as mortgage and credit card processing, cutting the number of jobs by ten percent while significantly improving its efficiency ratio. Moreover, it peeled off layers of the old Firstar's hierarchical management; by 1999, Firstar had an entirely new management team. The bank also moved away from its old management structure based on geographic boundaries to one organized around its three areas of business: retail financial services, commercial financial services, and trust and investment management.

Analysts looked favorably on the revamped Firstar. In December 1998, Firstar moved into the Standard & Poor's 500-stock index, replacing Amoco; its stock hit an all-time high of $93 a share, a 60 percent appreciation for the year. The company experienced above average earnings growth of nearly 18 percent in an industry enjoying 12 percent overall, and Firstar announced a three-for-one stock split as well as its intention to buy back as many as five million pre-split shares. Firstar was named the top-performing bank in the country in 1998 by American Banker Magazine and the No.2 financial institution in the world in terms of shareholder performance by The Economist. The Wall Street Journal also cited Firstar as among the 32 companies posting best returns for shareholders.

As Firstar closed out the 20th century, it set itself the goal of becoming the preeminent financial service corporation in the Midwest. A major step in this direction occurred in 1999, when it again doubled its size, to 1,180 branches, and increased its assets to near $75 billion with the acquisition of the largest bank in Missouri, St. Louis Mercantile Bancorporation Inc. This purchase brought Firstar's total number of customers to five million, and put Firstar within competitive reach of Minneapolis-based U.S. Bancorp, run by Jack Grundhofer. Unfortunately, the merger announcement also prompted a 30 percent fall in its stock price. The drop, speculated analysts, may have been prompted by the fact that Mercantile was perceived as a sub-performing company and that Firstar was perhaps becoming too acquisitive too quickly after the Star Banc merger. Nevertheless, management at Firstar continued to champion the merger, and analysts eventually had to agree. American Banker magazine named Jerry Grundhofer its 'Banker of the Year' for 1999, citing his achievements in overseeing 'two model deals in a single year.' For Firstar, the nation's 12th largest bank and the second largest in the Midwest after the merger with Mercantile, continued growth seemed certain; in fact, analysts seemed to enjoy speculating on which bank Firstar would look to next.

Principal Subsidiaries: Elan Life Insurance Company; Firstar Finance, Inc.; Firstar Insurance Services, LLC; Firstar Investment Research & Management, LLC (FIRMCO); Firstar Title Corporation; Miami Valley Insurance Company; Mississippi Valley Life Insurance Co.

Principal Operating Units: Retail Financial Services; Commercial Financial Services; Trust and Investment Management; Insurance Services.

Principal Competitors: Bank One Corporation; Fifth Third Bancorp; First Bank System Inc.; U.S. Bancorp; Wells Fargo & Company.

Further Reading:

• Armstrong, Douglas, 'Failed Restructuring Set Stage: Firstar Forward Plan Never Achieved Goals,' Milwaukee Journal Sentinel, July 1, 1998, p. 1.
• 'Banking Brothers Area Study in Contrasts,' Columbus Dispatch, July 12, 1998, p. 1H.
• Byrne, Harlan S., 'Firstar Corp.: Bank Company, Formerly First Wisconsin, Pushes Beyond State Lines,' Barron's, January 16, 1989, pp. 39-40.
• ------, 'Shining Brighter,' Barron's, June 20, 1994, p. 19.
• Causey, James E., and Kathleen Gallagher, 'Firstar to Nearly Double in Size,' Milwaukee Journal Sentinel, May 1, 1999, p. 1.
• Causey, James E., 'Analysts Muse About Bank Brothers Merger,' Milwaukee Journal Sentinel, May 5, 1999, p. 1.
• ------, 'Firstar Likely Looking to Branch Out in Other States,' Milwaukee Journal Sentinel, May 9, 1999, p. 1.
• Gallagher, Kathleen, 'Bank on Change at New Firstar,' Milwaukee Journal Sentinel, July 13, 1998, p. 6.
• 'Good Chemistry Helped Seal Firstar, Star Banc Deal,' Milwaukee Journal Sentinel, July 3, 1998, p. 1.
• Klinkerman, Steve, 'Firstar's Chief Exec Says the Real Keys to Profits Are People, Not Technology,' American Banker, January 13, 1994, p. 4.
• Norman, Jack, 'A Rising Star in the Midwest,' Milwaukee Journal, September 13, 1992, pp. 1, 7.
• 'Peer Pressure (Interview with Firstar Chairman Roger Fitzsimonds),' United States Banker, September 1993, pp. 14-20.
• Silverman, Gary, 'Midwest Banks Left in Shadows by Their Own Caution,' Financial Times (London), December 9, 1999, p. 34.
• Weier, Anita, 'Firstar Builds on Expansion Plan with Acquisition of Iowa Group,' Business Journal-Milwaukee, August 13, 1990, p. 2.
• ------, 'Firstar Consolidates Minnesota Banks,' Business Journal-Milwaukee, February 11, 1991, p. 2.

Source: International Directory of Company Histories, Vol. 33. St. James Press, 2000.

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