Stocks: CoreStates' Cuts Get Mixed Reviews on Wall St.

CoreStates Financial Corp.'s ambitious cost-cutting plan won an upgrade Thursday from bank equity analysts at Goldman, Sachs & Co., but some other analysts were left cold by the news.

Goldman analysts Robert Albertson and Kimberly Rector lifted their rating to "trading buy" from "market performer," citing the plan to reduce CoreStates' work force by 19% and save $180 million over 21 months that was unveiled on Wednesday.

Mark Alpert of Alex. Brown & Sons, who had recommended the stock earlier in the year, slapped a "hold" on the stock after it rose $1.125 to $32.375 on the news Wednesday.

At S.G. Warburg analyst Francis X. Suozzo, while praising the plan, said the cost savings already are reflected in the share price, and stuck with his "hold" rating on CoreStates.

CoreStates shares fell 25 cents to $32.125 in trading Thursday.

The extent of the Philadelphia-based banking company's cost cutting surprised analysts, who had expected $80 million to $120 million in expense reductions.

The bank said it could reach its objectives through a combination of layoffs, attrition, volunteer severance, and a hiring freeze. And it disclosed that a number of top executives will be leaving the company as part of the program.

"We took the expense-reduction program seriously because of the exceptional detail the company was able to show," said Mr. Albertson at Goldman Sachs, which set a nine-month price target of $39 on the stock.

"First, they outlined a quarterly schedule, which is more detail than most banks will own up to. Second, they detailed line-by-line expense savings. Third, they gave the savings by business category," Mr. Albertson said.

Raising his 1996 earnings estimate by 70 cents, to $4.30 a share, Mr. Albertson said the CoreStates' action should be regarded as a "major, inward-looking" restructuring similar to those undertaken by First Interstate Bancorp, Midlantic Corp., and Fleet Financial Group.

In each of those cases, he said, an aggressive target was outlined after a long planning process, and in each case the bank hit the targets.

Mr. Albertson said the plan was somewhat reminiscent of a plan announced recently by First Fidelity Bancorp. But he put CoreStates' initiative in a different category than those by big banks such as Chemical Banking Corp., which announced cost cutting after a merger, or J.P. Morgan & Co., whose planned staff cuts were far less sweeping than those at CoreStates.

Mr. Alpert at Alex. Brown joined Mr. Albertson in lifting his earnings projections on CoreStates. He raised his 1996 estimate to $4.49 from $4. But he said the time may have passed to make a killing on CoreStates' stock, and lowered his rating to "hold" from "buy."

"We felt that the time to be recommending the stock was when people were underestimating it," Mr. Alpert said. "When we recommended the stock a few months ago we felt investors weren't taking the restructuring plan seriously," he said, noting that bank officials said they were studying a cost restructuring last fall.

"When they announced yesterday, the magnitude was above expectations, but now everybody knows it," Mr. Alpert said. The stock could rise a few more dollars, he said, but "we wanted to see more potential return to retain a 'buy.' "

A more skeptical view of the plan came from Mr. Suozzo, who lifted his 1996 projection by 20 cents to only $3.80 on the CoreStates announcement.

Mr. Suozzo, who felt the financial targets were "too aggressive," based his estimate on the assumption that savings will amount to only $120 million. He said that CoreStates "runs the risk of disappointing shareholders."

He suggested there may not be much room for improvement for CoreStates, noting that the bank already is fairly efficiently run, with an expense ratio of 60%, slightly superior to the 61.5% average of the regional banks he covers.

In trading Wednesday, shares of Banc One Corp. dropped as much as $1.75 on an erroneous report of a new $1.3 billion securities loss. The bank said in January that securities losses for 1994 amounted to $1.3 billion. The stock closed down 75 cents to $27.50.

Shares of Chase Manhattan Corp. rose $1 to $36.125 on a positive analysts report by Sanford C. Bernstein & Co.

Shares of Bank of New York Co. surged in extremely heavy volume. The stock ended $1.625 higher, at $33.50, on volume of 6.689 million shares, or more than 1,200% of average daily volume. Most of the trading was in large blocks.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER