1st Union DealFor CoreStates Could Cut 9,000 Or More Jobs

Analysts have begun focusing on the personnel- and cost-reduction consequences of First Union Corp.'s $16.1 billion deal to buy CoreStates Financial Corp., and it is not a pretty picture.

While the two companies have said they have not decided on the details of the likely cutbacks, industry observers generally put the estimate of job losses between 6,000 and 9,000-and some estimates went higher.

CoreStates employs 19,000 people and First Union 43,000.

Analysts said at least half the work force reductions would be in retail banking, with the rest occurring among headquarters and back-office staff.

In the merger announcement Tuesday, First Union said it would create 3,000 jobs in CoreStates' home city of Philadelphia, presumably offsetting some layoffs.

Branch closings could total more than 300, based upon First Union's calculation that 55% of CoreStates' 566 banking offices lie within two miles of a First Union branch.

But any such estimates, critical as they will be to the banks andthe people affected, remain highly speculative.

The company executives "don't even know themselves," said Bert Ely, an Alexandria, Va.-based industry consultant. "All the numbers at this point are very tentative."

Mr. Ely said that many variables are at play, such as uncertain attrition rates in the lower echelons. And decisions on branch closings could be affected by political considerations and community demographics.

First Union said it would save $370 million from branch consolidations, some of that coming from personnel cuts. The company said it will save an additional $184 million from other job reductions.

R. Harold Schroeder, an analyst with Keefe, Bruyette & Woods Inc., said First Union's overall $723 million cost-cutting plan is "aggressive but achievable.

"We don't know," CoreStates spokeswoman Linda Stryker said when asked about the people and brick-and-mortar impact. "It is so very early ... and there are so many factors involved. For instance, we don't know how many empty positions there will be at the time the merger actually occurs."

The anticipated closing date is April 30.

First Union's calculation that it will spend $305 million on severance and relocation indicates sizable layoffs are in the offing, said analysts.

"That is a big number of bodies," said Nancy Bush, an analyst with Brown Brothers Harriman & Co.

She said the contemplated level of expense cuts is typical for large bank mergers.

"When you pay a high price, you have to get a high return. That is the reality," Ms. Bush said, adding that First Union must be careful to maintain a level of service that minimizes deposit losses.

The $144 billion-asset First Union has 1,941 branches up and down the East Coast. When the Charlotte, N.C., holding company completes its acquisition of Signet Banking Corp. of Richmond, scheduled next week, that number would rise to 2,186.

Its largest overlap with CoreStates is in the Philadelphia area, where CoreStates has 53 branches and First Union 29, said First Union spokesman Ken Darby. The company is expected to divest at least $900 million of deposits there to meet antitrust concerns.

In New Jersey, First Union has 311 branches and CoreStates 156.

"In Philly and in New Jersey there will be lots of opportunity for consolidation of the management in the branch structure," said Mr. Ely.

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