Fleet and First Union must reissue repurchased shares Surprise move caused by accounting rule

September 20, 1997|By BLOOMBERG NEWS

NEW YORK -- Fleet Financial Group Inc. and First Union Corp., which have repurchased 27.5 million shares of their stock, are suddenly forced to sell them again.

The banks are now being forced to sell a total of 18.5 million shares to qualify for a special accounting rule that helps make their acquisitions of other banks more affordable, but is contributing toward sending their shares down, surprising some investors.

"If you bought the stock anticipating buybacks, and now there's no buybacks, some estimates will come down," said Keefe Bruyette & Woods analyst Hal Schroeder. "Instead of just stopping a program, they're throwing it in reverse."

Boston-based Fleet, in addition to its agreement to swap 23 million shares to acquire Quick & Reilly Group, said it will reissue 11 million shares to the public so it can gain favorable accounting treatment for the $1.6 billion purchase. The new Fleet shares represent 4.4 percent of its total.

First Union, the sixth-largest U.S. bank, yesterday sold 7.5 million shares in addition to the 61.4 million shares to be issued for its $3.25 billion purchase of Signet Banking Corp. of Richmond, Va. The 7.5 million new shares represent 1.3 percent of Charlotte, N.C.-based First Union's total outstanding.

Schroeder said the banks are taking the right steps because they remove a potential sticking point that the SEC could use to block a merger. "They want to get these deals done quickly," Schroeder said. The sell-back also "lets them get geared up for buybacks next year and gear up for the next acquisition." The Quick and Signet transactions both use the pooling-of-interests accounting method, which lets acquirers avoid paying millions in goodwill charges -- the difference between the target's liquidation value and the purchase price.

But first, the banks needed to reissue the shares to satisfy arcane Securities and Exchange Commission rules governing stock buybacks and acquisitions.

"You're seeing the downside of share repurchases," said Brown Brothers, Harriman & Co. analyst Nancy Bush. "If you want to do pooling deals, some companies will have to reissue those shares."

There's a price to be paid for not playing it safe, as the SEC cracks down on banks that run afoul of buyback rules.

Last month, the SEC said Crestar Financial Corp. couldn't buy back shares for corporate purposes until 1999 because its plan wasn't deemed clear enough.

Pub Date: 9/20/97

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