Stocks: Strong Rating, Merger News Lift First Union Stock

First Union Corp. shares jumped on positive merger news and a favorable report from analyst Ruchi Madan of PaineWebber Inc.

Ms. Madan, initiating coverage with an "attractive" rating, said First Union stock could gain up to 20% in the coming months as share buybacks and merger dynamics kick in.

Separately, First Union disclosed plans to buy a small investment banking firm for an undisclosed price (see article, page 22). And in a regulatory filing, the Charlotte, N.C., banking company said it had determined that it did not exceed Federal Reserve rules for market share in Philadelphia and could therefore retain branches in that area after its merger with CoreStates Financial Corp.

Shares of First Union rose 93.75 cents, to $53.75.

Ms. Madan, who set a 12-month price target of $63, also said "it's very possible" that First Union will announce a large banking company acquisition this year and named Fleet Financial Group as a likely target. Fleet shares fell 31.25 cents, to $78.6875.

First Union has a solid focus on nonbank businesses and superior technology-attributes that "typically attract us to a bank stock," Ms. Madan said.

At the same time, though, the bank is not reaching its potential, she said. "Investors should expect a lower growth rate than the franchise is capable of producing due to ongoing dilutive acquisitions." First Union is also "front-loading large investments" that may not pay off for several years, Ms. Madan said.

The assessment came on a day when bank stocks recovered from their modest slide Monday. Banks got "a bit of a pop" from the market's rebound and a modest steepening of the yield curve, said Eric Rothmann, banking analyst at Stephens Inc.

Investors will continue turning to bank shares, especially as an alternative to technology issues, Mr. Rothmann said. Technology companies' profitability is in doubt, he said, and investors will opt for banking stocks as these companies "hit their numbers" for the first quarter.

The Standard & Poor's bank index rose 1.46%, and the Dow Jones industrial average gained 0.89%. The Nasdaq bank index increased 1.20%; the S&P 500, 1.14%.

Among money-centers, Chase Manhattan Corp. rose $3, to $121.5625, and Citicorp gained $1.6875, to $131.6875.

Shares of Wells Fargo & Co. spurted $4.8125, to $321, partially rebounding from Monday's $8 drop, when Thomas K. Brown of Donaldson, Lufkin & Jenrette reduced his price target for the San Francisco banking company.

Shares of Banc One Corp. were up $1.4375, to $60.25, after Goldman, Sachs & Co. reiterated a "recommended list" ranking and set a 12-month price target of $72 for the stock.

But shares of J.P. Morgan & Co. failed to ignite, falling 6.25 cents, to $122.25, after the company disclosed plans to spend $160 million this year on converting its systems to accept year-2000 data. In a separate regulatory filing, Fleet said it expects to pay $150 million for a similar systems conversion.

Unity Bancorp shares rose $1.25, to a 52-week high of $21.75, after the company announced it had hired an investment banker, First Colonial Securities Group, to advise "on potential mergers and acquisitions." The $173 million-asset company operates six branches in New Jersey.

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