Under pressure from investors and its board to correct performance problems, First Union Corp. announced Thursday that its No. 2 executive, John R. Georgius, will step down at yearend.
G. Kennedy Thompson, 48, was picked to succeed Mr. Georgius as president and chief operating officer. Mr. Thompson is a vice chairman of the bank and chief of its capital markets division.
Wall Street was expecting a more significant shake-up. As word spread that an unscheduled board meeting was in progress, speculation was rife that chief financial officer Robert T. Atwood-and possibly even chairman and chief executive officer Edward E. Crutchfield-would be shown the door.
"Hiring Ken Thompson is not going to improve third-quarter earnings," said Dianne L. Glossman, an analyst with Lehman Brothers in New York. "I'm sure he will be positioned as someone who's been able to successfully grow a business ... but it doesn't address significant problems there."
Still, few question Mr. Thompson's resume at First Union. A 23-year veteran, he is credited with expanding its capital markets unit in just three years, a time of intense competition among established players.
"His leadership role in capital markets has been a key factor in advancing and increasing our business in a challenging global marketplace," said Mr. Crutchfield.
Speculation of a management shake-up sent First Union's stock price soaring on a day when bank stocks were battered. First Union shares closed up 2%, at $47.8125, in trading on the New York Stock Exchange.
But throughout the day, analysts also feared that the board would not go far enough in making management changes. Only a sweeping change-including the departure of Mr. Crutchfield-would assuage the market, they said.
"You have to make it go all the way to the top," said Nancy A. Bush, an analyst with Ryan Beck & Co. "Or if you don't go all the way, make it clear that the top guy is working under new parameters."
Criticism of the bank's management has escalated during the first half of the year. In that span, the bank lowered earnings estimates twice and has failed to stem a wave of retail customer departures.
Those events put Mr. Georgius, Mr. Atwood, and Mr. Crutchfield on Wall Street's hot seat.
"If this is the first time the board is sitting down and saying we should have some accountability about what's happening then they should be ashamed," Ms. Bush said "Maybe they're beginning to get sick of it. The street has been tired of it for a while now."
For Mr. Georgius, 55, the move comes only nine months after being named chief operating officer. A bank source said Mr. Georgius participated in Charlotte board meeting via conference call from New York.
Ronald I. Mandle, an analyst with Sanford C. Bernstein in New York, said First Union will have to show significant progress in meeting performance goals during the next year.
"The sure way to win back the market is to show improving earnings," he said. "If they can match their goals over the course of a year, it would go a long way. Ultimately that's what they need to do to win confidence."
Earnings in the second quarter were down 9.3%, the bank said. The worsening projections came as First Union struggled to absorb CoreStates Financial Corp., which it bought for $20 billion in April 1998. First Union's stock price has fallen 23% since Jan. 1.
In a call to analysts May 25, shortly after the bank's last earnings revision, Mr. Georgius said, "We feel like we've got a good handle of where the numbers are going for the balance of 1999. Frankly, the worst is behind us. ... I can't remember a more challenging year."
The banking company said this week that it has lost 19% of CoreStates customers since the deal was announced.
Internally, bankers say the earnings problems were seen as the work of Mr. Georgius and Mr. Atwood. "It was Bob's job to come up with the numbers and John's to fill the holes," said a longtime employee of the bank. "They both failed."