First Union to be more restrained in acquisitions Analyst offers assessment after meeting managers


CHARLOTTE, N.C. -- First Union Corp., the sixth largest U.S. bank, will be more restrained in making acquisitions, Sandra Flannigan, an analyst at Merrill Lynch & Co., said after meeting with bank management.

"For the first time in years, we believe management likely to adhere to a more disciplined acquisition strategy," Flannigan told clients yesterday. "Management is swearing off large-premium deals and taking the pledge that nonpremium mergers of equals will be their future blueprint."

The Charlotte-based bank aggressively expanded its business during the past dozen years, making acquisitions at a rate of one every two months.

While building an East Coast consumer and corporate bank with $220 billion in assets, it gained a reputation for paying too much for takeovers.

As a result, First Union's stock is one of the cheapest among major banks -- 19 times this year's estimated earnings compared with an average for regional banks of 22 times earnings.

Investors and analysts said First Union takeovers reduced shareholder returns. Last July, First Union agreed to buy Signet Banking Corp. of Richmond, Va., for $3.25 billion, to become the largest bank in Virginia. On Nov. 18, it beat out Mellon Bank Corp. to buy CoreStates Financial Corp. of Philadelphia for $18 billion, paying more than five times book value in one of the biggest bank transactions ever.

A First Union spokeswoman said Chairman Edward Crutchfield and other top management were speaking to investors and analysts yesterday. They weren't available to comment on Flannigan's report.

Flannigan raised her "near-term" rating to "accumulate" from "neutral" and said the stock should trade at 70 within the next year. She kept her "long-term buy" rating on the stock. First Union fell 18.75 cents to closed at $58.875 yesterday.

Flannigan increased her 1999 earnings estimate to $4.40 a share from $4.25, reflecting the addition of Money Store Inc. and the bank's above-average profitability.

Pub Date: 6/13/98

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