First Union Corp. may be getting ready to steal a page from NationsBank Corp.
Nancy A. Bush, a banking analyst with Brown Brothers Harriman, said she visited First Union vice chairman John Georgius early last month. She came away with the impression that the bank would announce, perhaps in October, higher targets for its capital ratios, return on equity, and growth of per- share earnings.
Ms. Bush said First Union may also soon reveal goals for its branch reconfiguration project, which is designed to encourage customers to use electronic banking services instead of traditional branches.
Dean Witter analyst Anthony R. Davis said recent discussions with First Union led him to the same conclusions. "Definitely look for higher financial goals and some very innovative disclosure in terms of alternative delivery," he said.
First Union spokesman Jeep Bryant said, "We are evaluating a number of strategies for strengthening our capital ratios and building upon the earnings momentum."
First Union's apparent scrutiny of new performance goals comes one month after rival NationsBank announced new three-year targets for its return on equity and efficiency ratio. NationsBank said it would shoot for a return on equity of between 17% and 20%, instead of the previous 15%-to-18% range, and an efficiency ratio of 50%, more ambitious than its current 60% target.
A NationsBank spokeswoman said Monday that the company views its revised goals as "still very achievable" in the wake of last Friday's announced buyout of Boatmen's Bancshares.
Ms. Bush said she believes First Union will announce its new performance targets following an October board meeting.
"The most important thing is that they are going to set forth new capital levels," she said. "I think that is quite important for them because, relative to everybody else, they look pretty thin."
First Union posted a 5.58% leverage capital ratio in the second quarter. Ms. Bush said she did not know what the new target will be, but believes it will be high enough to support major share repurchase activity in 1997.
Mr. Davis said he thought First Union might shoot for a leverage ratio of between 6.5% and 7%, which would bring it closer to peer levels.
He also said First Union will strive to earn "18% or better" on equity, up from the current targeted range of between 16% and 17%. He said he expects the bank to achieve a 19% return on equity this year and 19.5% next year.
First Union earned 19.11% on equity in the second quarter, compared with 16.69% for the full year of 1995.
Mr. Davis said First Union's ability to consider higher performance goals relates to its success in developing fee income capability in its capital markets and capital management units. He said he also expects First Union's investment in various forms of electronic banking to pay off, allowing the bank to shed many of its 1,900 existing traditional branches.
First Union has pilot projects to test alternative delivery mechanisms in two North Carolina cities, Durham and Asheville.
"As they continue to make progress on alternative delivery and electronic banking, it's a very safe assumption they will not need in the future the elaborate branch franchise they've traditionally supported," Mr. Davis said.
