First Union sees brighter days ahead

CEO disappointed with bleak earnings

August 05, 1999|By BLOOMBERG NEWS

NEW YORK -- The chief executive officer of First Union Corp., which is struggling to regain investor confidence after twice cutting its profit forecast this year, told analysts and investors yesterday that he is disappointed with the bank's performance.

"I know that we have disappointed you this year with our downward earnings forecast and revisions," said Chairman and Chief Executive Officer Edward E. Crutchfield Jr. at a meeting in New York. "I can assure you we have disappointed ourselves even more. What I'm asking you to do is focus on the future rather than the past."

John Georgius, the bank's president, who plans to retire from First Union at the end of the year, said the combination of converting the bank's more than 2,300 branches to new sales techniques and integrating the purchase of CoreStates led to a loss of customers.

Long lines in branches, aggressive efforts to direct customers to telephone centers and the need for employees to learn new tasks caused a deterioration in service, he said.

"We will have a majority of the service issues we were confronted with at CoreStates well in hand," Georgius said. "We will hear a lot less noise about this."

The bank also said pretax net income in its capital markets and capital management units will grow at least 16 percent annually over the next four years. Capital management, which includes the sale of mutual funds, trusts and insurance, is expected to produce income of $1.71 billion by 2002, up from $1.08 billion this year. Capital markets includes loan syndications, high-yield bonds, and merger advising.

Ken Thompson, the head of capital markets, said that by 2002, the bank will double to $200 million its spending on its business of underwriting and selling stocks.

"In equities, we plan to be nicely profitable within a three-year planning horizon," he said. Thompson is to become president of First Union on Dec. 31.

The bank, which has 775,000 Internet customers, said it is in discussions with operators of Internet sites to offer financial services electronically.

"We are in pretty serious discussions with a number of alliance partners," Crutchfield said.

While Internet partnerships appeal to the bank, outright mergers with other financial institutions are unlikely.

"A no-acquisition period is the best thing for us right now," said Crutchfield, who helped orchestrate several mergers over the past three years, tripling the bank's size. He said he would be interested only in buying certain types of companies, including asset managers with $20 billion or less under management, and, perhaps, smaller investment banks.

First Union's purchases, particularly of CoreStates, have reduced profitability and pushed down the bank's share price. First Union's stock trades at 12 times its trailing 12-month earnings, well below the average of 18.1 for a group of 15 large regional banks that includes Wells Fargo Co., SunTrust Banks Inc., Bank One Corp., and Wachovia Corp.

First Union's shares fell $1.6875 to $44.5625 yesterday, as most financial-services stocks fell.

Pub Date: 8/05/99

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