First Union Corp. is taking aim at the small-business market with a plan to convert 297 consumer branches throughout its network into specialized business financial centers.

The centers, which are slated to be operational by July, are designed to put a sharper focus on First Union's services for existing and prospective small-business customers - a market the company sees as having significant growth potential. First Union says it already has 750,000 small-business customers.

"We believe that small business is one of our key areas of growth," said Martha Hayes, a senior vice president and head of the Charlotte, N.C.-based banking company's small-business banking division. "It's not an new area of business for us, but the centers offer us an opportunity to diversify."

The plan is the expansion of a test that was conducted last September in eight locations in Richmond, Va., and Tampa. Reworked branches have been opened every month since late last year as part of the full blown rollout of the program.

Analysts say the move has potential for a good profit margin but also potential risks.

Michael Mayo, an analyst with Credit Suisse First Boston, said First Union was taking "proactive steps to better evolve their business model for a changing, competitive environment." Mr. Mayo added, however, that the company has spent too much on many of its growth initiatives.

"The challenge is to balance these two considerations - spending money to evolve the business model without spending too much," Mr. Mayo said. "They need to show tangible progress in taking expenses out elsewhere at the company, too."

Lawrence Cohn, an analyst with Ryan, Beck & Co., said a lot of banks are taking a closer look at the area because of the potential for a good profit margin. "If you can get the service content right, it can be a good business," Mr. Cohn said. The key to making the move a success is being able to control high transaction costs, Mr. Cohn added.

A consultant who tracks the small-business and consumer banking markets said First Union's effort makes sense. "They should reap a substantial return because most of their competitors have not gotten there yet," said Les Dinkin of NBW Consulting Group, a Westport, Conn.-based firm.

The small-business market includes not only revenues from servicing the business itself, but also revenues from account and other service relationships with the owners of the small business, Mr. Dinkin said. "For many retail banks, the contribution from the [small] business and the owner's personal accounts represent 50% or more of their retail revenue," he said.

Despite the potential to boost revenues this way, many banks shy away from serving small businesses because their needs are complicated, Mr. Dinkin contends.

"Only now are banks starting to understand the importance of the business," Mr. Dinkin said.

First Union said it chose the sites for the new centers based upon the number of small-business clients it already serves as well as the potential for cultivating more business in those areas. The company has branches in 12 states and the District of Columbia and full-service brokerage offices in 41 states.

The bank's consumer customers will still be served at the same branch sites. The look of the branches, however, will change, with new signs, merchandising kiosks, and newly trained First Union employees who will become versed in the company's small-business products and services, said Karen Kitzmiller, a spokeswoman.

The centers will offer an array of services, including cash management, online banking, term loans, mortgages, and lines of credit.

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