UPDATE: M&I to slash First Indiana costs

The Wisconsin bank acquiring First Indiana expects to realize cost savings of 20 percent by merging back-office functions and cutting potentially dozens of local jobs.

Milwaukee-based Marshall & Ilsley Corp. hopes to retain most of First Indiana’s bankers and will keep all 32 branches open. CEO Mark Furlong told IBJ this morning that within three to four years, the bank should more than replace the quantity of jobs it eliminates.

He would not estimate job cuts. First Indiana has about 500 full-time workers.

In the last several years, First Indiana has played up its status as a local bank that hasn’t sold to an out-of-state financial institution. Executives say they don’t expect customers to punish them for changing course, since the same bankers will be in place.

Many banks, including Harris Bankcorp of Chicago, would have wanted to buy First Indiana Corp., according to long-time analyst John Reed, president of investment banking group at David A. Noyes & Co. of Chicago.

In fact, Reed expected Harris instead of Marshall & Ilsley Corp. to snap up First Indiana.

Harris is the U.S. unit of Bank of Montreal in Canada. In January, Harris closed on a $290 million acquisition of First National Bank & Trust, a Kokomo institution owned by Mark and Hart Hasten. First National had a few branches in the Indianapolis area, but mostly operated in Kokomo and western Indiana, Reed noted.

That suggested Harris would try to grab First Indiana to flesh out its Indianapolis presence.

“M&I wanted it more badly, I guess,” Reed said. “If you have your heart set on being in central Indiana, it’s the only bank of size left.”

First Indiana Corp.’s Milwaukee-based acquirer said this morning that it will pay $529 million, or $32 a share. That’s a 45 percent premium to where First Indiana stock has been trading.

Rumors have swirled for weeks that First Indiana, the city’s largest remaining locally based bank, was in negotiations to be acquired. Industry buzz had focused on national powerhouses, such as San Francisco-based Wells Fargo.

Instead, First Indiana is selling to the modest-size Marshall & Ilsley. Its M&I Marshall & Ilsley Bank is the largest Wisconsin-based bank, with 192 offices in the state. M&I also has offices in Arizona, Florida and other markets.

The branches will become Marshall & Ilsley branches after the deal closes late this year or in early 2008.

Marshall & Ilsley has assets of $56.5 billion. First Indiana is far smaller, with assets of $2.1 billion.

In the spring of 2006, First Indiana sold its trust division to Marshall & Ilsley for $15 million in cash.

Marshall & Ilsley announced before the market opened this morning that it had reached a definitive agreement to buy First Indiana.

Marshall & Ilsley is buying its way into a major Indianapolis presence just two weeks after Fort Wayne-based Tower Financial Corp. said it would indefinitely delay plans to launch a location in Carmel. The primary reason for the pullback was intense competition in the Indianapolis-area market, Tower said.