First Union Starts to Recover
By
Brian Graney (TMF Panic)
January 14, 2000
Charlotte-based regional bank holding company First Union (NYSE: FTU) gained some ground after reporting fiscal 1999 earnings that were in line with a previous warning... from May 1999. The May warning was actually the second of a pair of downward revisions last year by the company, which had originally been expected to earn about $4.29 per share in the year that just was. Today, First Union ended up turning in EPS of $3.40 for the year (excluding one-time gains and charges) and $0.86 for Q4.
In a conference call, the bank reiterated that it will attempt to rebuild the credibility it lost through last year's one-two warnings punch by posting "modest growth" in 2000. That seems to fit in well with the consensus view of analysts, who are expecting 4% EPS growth this year to $3.55. In 2001, the mean estimate is calling for 8% growth. But as shareholders learned the hard way last year, the further the projections timeframe is stretched out, the more chances something screwy can happen and mess up even the most conservative of analyses.
Referring to First Union as a mess was en vogue for much of last year, but President Ken Thompson believes those days are long gone. "We've turned the corner," he said during today's call. "We feel good about where we are." Persuading investors to faithfully accept the party line will take a few additional quarters of no-surprise performances, however.
With last year's major reduction in growth estimates, the bank's shares suffered a not-so-surprising total 1999 loss of 46%. The company currently trades at just under 10 times its forward-earnings estimate, ranking it as the low man on the P/E totem pole among an overall fairly depressed regional banking field.
Still, management insists that things are starting to look up in Charlotte. The customer service problems that plagued the company last year following its $20 billion merger with CoreStates have "essentially been resolved," according to Chairman and CEO Ed Crutchfield. The bank is projecting further service improvements this year, thanks to an annualized $90 million that has been earmarked for enhancing service throughout the organization.
Another bright spot has been the company's recently completed acquisition of brokerage firm Everen Securities, whose $190 million in brokerage-fee income in Q4 represented a sizable chunk of the $811 million in total income reported by the Capital Markets unit during the period. First Union is also sitting on some $1 billion in unrealized gains, thanks to success on the venture capital front. However, the firm's Money Store unit, despite a reported improvement in overall loan quality since its acquisition in 1998, is not expected to contribute to earnings this year.
With back-to-back blowup-free quarters now under its belt, all of the cockroaches appear to be out of the woodwork at First Union. But with the interest rate environment still shaky and long-term growth difficult to project, tiptoeing back into these murky green waters should be left to those investors who have followed Crutchfield and Co. for a while and are more familiar with the company's potential.
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