First Union Paid How Much For That Bank?

It's spending like mad to build an East Coast empire

At an analysts' meeting on Nov. 12, First Union Chairman Edward E. Crutchfield graphically outlined the financial and operational obstacles he assesses in looking at any deal. Despite rising prices for banks, Crutchfield vowed, he would stand by his plan to reject any deal that wouldn't contribute to earnings within 18 months. "We still have those same hurdles, but there would have to be a hell of a good reason to overcome them," he assured the analysts. Less than a week later, Crutchfield apparently cleared his self-defined hurdles--and struck a deal to acquire CoreStates Financial Corp. for $16.6 billion. That's a heart-stopping record of 5.3 times CoreStates' book value--far above recent deals at 3 or 4 times book.

Call him Hyperspeed Eddie. The old "Fast Eddie" moniker just won't do anymore for Crutchfield, a ravenous bank executive who has built a $157 billion bank by inking 75 deals in the last decade. Before the CoreStates deal, Crutchfield this year acquired Signet Banking Corp. for $3.25 billion and hurtled into retail brokerage with the $485 million purchase of Wheat First Butcher Singer Inc. By adding CoreStates' operations in Pennsylvania, he gave First Union Corp. an unbroken crescent of territory from Connecticut to Florida.

Hyperspeed Eddie hopes to turn his dealmaking into a big payday for shareholders. Through a geographically connected market and one of the industry's most advanced technology platforms, he plans to convert each customer into a profit center while ruthlessly cutting unprofitable operations and capturing business from competitors. Meanwhile, he may keep buying. Vice-Chairman John R. Georgius says First Union is interested in adding a mutual-fund company to its current $30 billion in proprietary funds, or even another bank within or connecting to First Union's territory.

Crutchfield says he is willing to pay high prices because speedy consolidation in banking means the industry one day will be dominated by a dozen or fewer banking powerhouses, and he intends to be one of them. "Nobody has yet told me we paid too much, and if they did, they'd be wrong," he says.

Yet having solidly consolidated his core base of retail and middle-market corporate customers along the wealthy Atlantic Coast, Crutchfield may have a harder time cutting strategically important deals and maintaining rapid revenue growth. But Crutchfield expects to see improved marketing efficiency because of his well-defined geographic focus. Analyst Darren R. Short of Robinson-Humphrey in Atlanta says Crutchfield has begun focusing more on customer quality than territory. "The goal is to get access to a well-heeled customer base," Short says. But on a per-customer basis, CoreStates, at about $4,150 per customer, comes much more dearly than Signet, which First Union bought in July. Hugh L. McColl Jr., chairman of archrival NationsBank, paid much less per customer this summer to expand in the lucrative Florida market by buying Barnett Banks.

FITS LIKE A GLOVE. The CoreStates operation represents a clear turnaround opportunity. The $47.6 billion Philadelphia-based bank was on the verge of announcing a strategic overhaul to cut costs and modernize its technology, making it a fit with First Union's strengths. "CoreStates needs a way to fix its retail operations, and First Union is the answer," says Carla A. D'Arista, a banking analyst with Friedman, Billings, Ramsey & Co. in Arlington, Va.

Still, Crutchfield must prove to investors that Hyperspeed Eddie can generate the returns he promises even as he drives prices for new deals past previously imaginable levels. When he bought Signet, which also was on the verge of a restructuring, he paid a then pricey 3.5 times book value. Crutchfield explained at the time that he saw a one-time opportunity to jump into the lucrative Virginia market. He's using essentially the same argument about Pennsylvania in explaining his willingness to pay 5.3 times book. So far, at least, Hyperspeed Eddie has never seen a financial hurdle he can't jump.

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