Nov. 3--First Union Corp. has raised its financial performance goals and said it will achieve the new targets in large measure by expanding its Wall Street-style investment banking and asset management products.
Charlotte, N.C.-based First Union has 327 branches in New Jersey, where it ranks second in deposit market share -- 11.8 percent, after Princeton-based Summit Bank's 13.4 percent share. Last January First Union acquired First Fidelity Bank, whose former chairman Tony Terracciano is both president of First Union and chief of its capital markets group.
The $134 billion asset First Union has offices in 12 states and the District of Columbia, its franchise stretching from Connecticut to Florida.
The bank said it's raising its return on equity target to 18 to 20 percent, from 16 to 17 percent; the new goal for return on assets is the 1.3 to 1.5 percent range, up from 1 to 1.1 percent, and the bank will seek annual per share earnings growth of 10 to 13 percent range, compared with the old 10 percent target.
In a press conference yesterday, First Union Chairman Edward Crutchfield said he wants fee-based businesses, such as investment banking and asset management, to generate 40 percent of the bank's revenues by the year 2000, compared with the current 30 percent.
Banks have traditionally made their money on the spread between the interest they paid on deposits, and the rates they charged on loans. But First Union is part of the vanguard of U.S. banks seeking more revenue from the sale of their financial services expertise -- things like private placements of debt and equity for businesses, and the sale of shares in stock and bond mutual funds to consumer seeking higher rates of return than are generally encountered in bank certificates of deposit (CD).
Beth Summers, a banking analyst for Ryan Beck & Co. in West Orange, said the new performance standards give Wall Street a better idea of what sort of acquisitions First Union would consider making, and how much they'd be willing to pay.
"You see constant speculation that First Union is going to buy this bank or that bank, and this gives us a framework for what they might be willing to accept," she said.
Crutchfield said First Union will concentrate on increasing the revenue from capital markets and from its extensive distribution system of about 2,000 branches along the Eastern seaboard; he said acquisitions "have gone from being a strategic necessity to being an option. We won't do them unless they meet a tougher burden of proof."
The most desireable targets are fee-based business, followed by fill-in acquisitions of banks inside the First Union franchise terrirotyr.
"A big, out-of-market bank acquisition would be a distant third," he said. "We don't have any strategic imperative to do them. I'm not saying never; it just goes form being a necessity to being a choice."
Summers said First Union is getting good results selling investment products in places like Perth Amboy, where customers don't traditionally deal with stock brokers but are willing to let a banker handle their stock market investments.
"A passbook account isn't going to be enough for people trying to save for retirement," Summers noted.
Terracciano said the capital markets business ought to generate a 20 percent return on equity, once the various products in that arena have been fully implemented; at present, the return is about 15 percent, he said.
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FTU,
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