At many banks, mergers are a line of business. Companies like First Union Corp. possess in-house staff to do much of the legal and research work needed to carry out mergers.

But when it comes to reporting earnings, First Union and most other banks are careful to separate the costs of mergers from the rest of their operations.

That's because their earnings would look much less impressive if the hundreds of millions in merger-related charges these companies regularly incur were actually reported as part of their operations.

In accounting, operating earnings refer to the amount of money companies makes in the course of regular business. Accountants allow companies to separate "extraordinary" or "nonrecurring" items such as merger-related costs, on the assumption these are rare events.

But there is nothing unusual about banking companies' taking massive "extraordinary" charges in this age of consolidation. Indeed, it has become an important way for banks to manage earnings. To some analysts, this smacks of abuse.

Nevertheless, companies get away with this accounting engineering because, during a raging bull market, the investment community permits it, said Charles W. Peabody, a banking analyst at Mitchell Securities.

"This willingness of Wall Street to turn a blind eye in one of the reasons that there is no financial discipline in today's marketplace," he said in a recent report.

First Union, one of banking's most frequent and respected acquirers, routinely clutters its earnings statements with a mish-mash of "extraordinary charges." The fourth quarter was no exception.

The company reported earnings of $1.00 per share, but if one included merger and restructuring charges related to its acquisition of CoreStates Financial Corp., earnings came out to 87 cents per share. And that CoreStates acquisition was completed in April.

Shareholders are still taking the brunt for National City Corp.'s acquisitions in March of First of America Corp. and Fort Wayne National Corp. Those two mergers resulted in $104.7 million in charges against fourth-quarter earnings. Costs related to National City's mergers reduced 1998 earnings to $3.22 per share, or 19.5% less than the company reported.

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