Bank again cuts earnings forecast

First Union Corp. puts much of blame on acquisitions

Banking

May 26, 1999|By BLOOMBERG NEWS

CHARLOTTE, N.C. -- First Union Corp., the sixth-largest U.S. bank, cut its profit forecast yesterday for the second time this year after a $20 billion acquisition in 1998 failed to generate enough revenue.

Shares of the Charlotte-based company yesterday fell $4.3125, or 8.6 percent, to $45.625, the biggest drop in eight years. Chairman Edward Crutchfield, who tripled the size of the bank in the past 3 1/2 years by buying rivals, said he is swearing off acquisitions because they don't "make a lot of economic sense anymore."

"They got too aggressive in expanding," said Michael Granger, a bank analyst at Fox-Pitt Kelton Inc. "They took on too much expense."

First Union said it expects 1999 earnings will be between $3.3 billion and $3.4 billion, or $3.40 to $3.50 a share. In January, the bank had said it expected to earn $4 a share, which was below analysts' forecasts at the time. In 1998, profit before merger-related charges was $3.7 billion, or $3.77 a share.

The company blamed its shortfall on last April's acquisition of Philadelphia-based CoreStates Financial Corp., higher expenses from developing its Internet bank, a reorganization of its branch system and last month's agreement to buy Everen Capital Corp., a securities firm, for $1.1 billion.

First Union expects its second-quarter profit to be about $770 million to $800 million, or 80 cents to 83 cents a share, below the 97 cents-a-share average estimate of analysts surveyed by First Call Corp.

"The CoreStates acquisition, while a good one, hasn't lived up to our expectations," Crutchfield said on a conference call with analysts. He also said last year's purchase of the Money Store Inc., a consumer lender, had been disappointing.

Crutchfield, who engineered four acquisitions worth more than $2 billion each since 1996, said he won't build the bank through acquisitions anymore. Instead, he sees First Union expanding through the Internet. The bank will spend $150 million this year developing its Internet business, aiming to boost its number of Web customers to 1.5 million from 700,000.

In an effort to boost its stock price, which has declined 26 percent this year, the bank said yesterday that it would buy back as many as 50 million shares, worth about $2.5 billion at yesterday's price.

"Crutchfield has to reinforce his credibility with the Street at this point," said Daniel Eagan, a managing director at BlackRock Inc.

Crutchfield faced several questions from analysts on a conference call about whether he might consider selling the bank.

"We have no interest in selling, and that's all I have to say," Crutchfield said.

Pub Date: 5/26/99

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