At CoreStates Financial Corp. in Philadelphia, the atmosphere is heavy with bitterness and a sense of betrayal.

It's not about money. First Union Corp. agreed to pay more for CoreStates than any other U.S. bank target, a hefty five times book value. Employees with stock and options won't do badly.

But what lingers for many is the impression of a top management team that said one thing to motivate the troops, then reversed position and literally sold out.

First Union chairman Edward Crutchfield faces a morale problem at CoreStates. His company has handled such problems well in other mergers, but some of the wounds may go deeper.

"We really felt that the chairman and the other executive officers meant what they said about staying independent," said a CoreStates senior manager who, like others contacted for this article, spoke freely when assured his name would not be mentioned.

"We'd gone through a strategic reassessment over the last six months to lay out to analysts in December what our plans were for achieving our goals," this manager continued. "And we worked very hard on that. When (chairman Terrence) Larsen told us we were going to stay independent through 1998, we thought that was the truth.

"The mood is not good."

CoreStates officers also pointed out that the bank had been running full-page ads in the Philadelphia Inquirer calling attention to its rejection of a previous bid from Mellon Bank Corp. of Pittsburgh.

"In the past 30 days you've probably read stories about what's been going on here at CoreStates and our decision to say 'No,'" said the ads. The company said that it usually, however, is known for saying yes to its customers, reinforcing its image as an independent, locally rooted institution.

"This ran in the Inquirer Saturday and Sunday, and on Tuesday they sold the bank," said one CoreStates executive. "I'm very upset."

Mr. Larsen, indeed, had taken a more vocal and public stand against a sellout than the typical chief executive officer in a takeover spotlight. That posture made face-saving especially difficult.

"He sent e-mail after e-mail internally telling us that he was too young to retire," one manager pointed out. But in the end, this manager said, the message really was that Mr. Larsen was waiting for an offer to come along that assured him of an attractive leadership position.

Mr. Larsen is in line to be First Union vice chairman after the combination is completed next year, with broad corporate and international banking responsibilities.

In an interview Tuesday, Mr. Larsen said, "We did not establish a goal or a policy of being independent." Though he acknowledged that some CoreStates employees "are having great difficulty dealing with" the merger announcement, he said "the partnership with First Union seemed to have clear advantages to carrying out our overall mission."

His boss-to-be, Mr. Crutchfield, has defended Mr. Larsen while trying to reassure his future employees at CoreStates. "In five days of negotiations," Mr. Crutchfield said in an interview last week, "Mr. Larsen never once mentioned himself."

The CoreStates CEO said he pushed for concessions and commitments that included creation of 3,000 jobs in Philadelphia, which would get the status of regional headquarters that he would oversee.

Mr. Crutchfield said he empathized with the many CoreStates employees who may face uncertain futures. "This is not going to be a slaughter," he said. "We don't operate that way."

He cited as precedent the acquisition of First Fidelity Bancorp. two years ago, saying all but 1,000 of the 12,000 employees of the New Jersey- based holding company were eventually retained.

Insiders at CoreStates said some of their colleagues are pleased with the First Union deal. These include employees of the former Meridian Bancorp, acquired by CoreStates last year, who were frustrated by their new management.

In Reading, Pa., where Meridian had its headquarters and CoreStates maintained some operations, "there were probably just as many people giving each other high fives as hugging each other and whimpering," said one employee based there.

The feeling among Meridian survivors was that the retail organization "took a couple of steps down" and "we were a better bank before," this employee said.

Because First Union has an excellent reputation in technology and in retail banking, "the consensus in Reading is fairly positive," the banker said. "In Philadelphia there is some crepe-hanging.

"They know First Union is a machine at getting these things done. They won't keep bodies around they don't need."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.