First Union May Be Ready for Another Deal

First Union Corp. finds itself in an odd position these days: watching other banks merge.

While its two big North Carolina rivals - NCNB Corp. and Wachovia Corp. - have announced major deals, Charlotte-based First Union has kept a low profile.

There is one deal that could change that picture quickly: a federally assisted takeover of Miami-based Southeast Banking Corp., which First Union might find too attractive to pass up. The company has sent a small army of employees to study the books of the troubled $12 billion-asset company.

Buying Binges in '80s

But other than that, First Union's stance is a far cry from its tactics in the last half of the 1980s - when its assets more than quadrupled as it swallowed up 22 banks in five states.

Indeed, First Union was part of an exclusive group that eventually got its own label: the superregionals.

But its stock began losing altitude two years ago, even before the general slide in bank equities, as investors worried about the costs of its huge franchise.

After a large acquisition last year, First Union, which has $39.7 billion in assets, virtually promised Wall Street it would suspend dealmaking and focus on efficiency and cost cutting.

Kinder Words from Analysts

Since then, and especially in the past six months, analysts have been saying nicer things and the company's stock has regained some old luster.

Now analysts believe First Union is in the happy position, occupied by few other banks, of not having to expand through acquisitions to stay competitive.

"In effect, this company did its essential merging earlier," said John J. Mason, senior vice president and banking analyst at Interstate/Johnson Lane, Atlanta. He was referring to the 1990 acquisition of the $7.6 billion-asset Florida National Banks, in Jacksonville.

Last week, Mr. Mason raised his investment rating on First Union's stock to a "buy," projecting that the stock will hit about $28 a share late this year. That would be a 16% increase in value from its $24 price on Thursday afternoon. - and 107% above its low of $13.50.

Analysts at Goldman, Sachs & Co. also like the stock, rating it "attractive" for their clients.

"Our 20% growth rate forecast for 1992 core earnings assumes declining loss provision levels, modest 3% loan growth, and continued tight expense management," they added.

Other analysts temper their expectations somewhat. Cheryl Swaim of Oppenheimer & Co., who rates the stock a market performer, noted: "The company says it is undergoing an OCC examination in the third quarter and believes its reserve is adequate.

"However, we believe the low [60%] reserve coverage of nonperforming loans leaves little cushion for bad news in a regulatory review."

Ms. Swaim considers the stock fairly valued but noted that "positive surprises are possible at First Union if the bank is able to acquire Southeast Banking in a federally assisted deal on favorable terms."

Shares of Wells Fargo & Co. back some of the ground they recently lost. Other bank stocks trended lower as the overall market marked time before alate rally.

Wells was up $2.50 a share, to $70, in afternoon trading. Security Pacific Corp. shares, which sometimes move in sympathy with those of Wells, were up $1.25, to $23.625.

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