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The Banking Brothers
By Andrew Haeg
October 12, 2000
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When Milwaukee-based Firstar agreed to acquire U.S. Bancorp, the deal attracted national attention, not least because the CEOs of both banks - Jerry and Jack Grundhofer - are brothers. It's younger brother, Jerry's, company - Firstar - that's taking over Jack's bank. While Jack will serve as chairman until 2002, Jerry, as CEO and president, will run the show.
MPR's Andrew Haeg interviewed the Grundhofers in the Minneapolis office of Jack Grundhofer (shown). Listen to an extended portion of the interview.

JERRY AND JACK were born in California; Jack in 1939, Jerry five years later. Their parents were by no means wealthy; mom worked at Sears, dad tended bar. Both boys attended Loyola Marymount College, a Catholic school near Los Angeles; both chose banking as a career.

"We're just A close family and, the fortunate thing is that Jack was a little older, so the fighting and the rivalry that are maybe a year or two apart, didn't really occur with us, because he was truly my older brother," Jerry Grundhofer says. "We had a very good relationship. He used to take care of me and send me money when I was in college, and I used to ride on the back of his bike when he threw papers at 4:30 and 5 in the morning, and he used to take me to baseball games."

Now they're getting even closer. When Jerry links up with Jack, they'll create a bank with assets of roughly $160 billion, in a deal initially valued at more than $21 billion.

But both brothers are adamant that this family affair is first and foremost a business transaction. They say both companies needed to merge to compete in the rapidly changing financial services industry.

The walls between commercial and investment banks are crumbling. Now banks can also be stock brokers and money managers. The only way to offer a diverse set of services, and to make the massive investments in technology needed to remain competitive is to grow - quickly.

U.S. Bancorp lacked a strong retail banking division. And, with a low stock price, it couldn't afford to acquire another bank that was strong in that area. Firstar lacked a strong investment banking arm; it wasn't raking in big fees from taking companies public. But it did have a healthy stock price. One last point making the deal seem all the more natural: perhaps as a result of some tacit brotherly oath, neither company had edged very far onto the other's turf.

"We both built banks with little geographic overlap, so you put them together and they fit like a puzzle piece," Jerry says.

"The fact is I never really wanted to compete with my brother, says Jack Grundhofer. "So we only compete a little bit in Minneapolis and Milwaukee. So this is the best of all choices to make sure we don't compete anymore."

Despite the brothers' logic, investors in both companies are starting to wonder if what's best for Jack and Jerry is best for them. Banks in general are contending with sliding stock prices, but Firstar's stock has dropped about 30 percent since the deal was announced. Wall Street analysts say this reflects the feeling among Firstar shareholders that this transaction is too big, and comes too soon after a number of other deals the company is still trying to digest.

Meanwhile, U.S. Bancorp shareholders have been selling their shares in part because of concern that Jack didn't negotiate a high enough price. Now they've got reason to be doubly miffed, as Firstar's stock price slides, the modest premium Firstar agreed to pay them dwindles.

But neither brother admits to being worried. Jack says the merger was designed to create shareholder value years from now.

"Everything about the deal makes immense sense in the long run," he says. "I didn't do this deal to worry about the stock price in the short run. I worried about and our board worried about the return for our shareholders in the long run."

Shareholders will get the last word when they vote on the merger early next year.

Jerry and Jack say they and their management teams will spend the coming months convincing shareholders and Wall Street to support the deal.

Both say they're looking forward to working together, but Jack, for one, has a lingering regret.

"The only thing I'm unhappy about is my father, our father, who died a couple of years ago, wasn't here to see it," he says. "He would have loved to have seen this; it would've been great."

Andrew Haeg covers business issues for Minnesota Public Radio. You can reach him via e-mail at