First Union Corp. shares jumped sharply on Monday after the superregional banking company announced a larger-than-expected stock repurchase program.
First Union said it may buy back up to 25 million of its own shares, or about 9% of its outstanding stock. The stock itself rose $2 in price to $77.50 per share on the New York Stock Exchange.
"The new variable in the equation is obviously trust preferred stock," said Anthony R. Davis, regional bank analyst at Dean Witter Reynolds Inc., New York.
Joining a host of other banks on a trail blazed a few months ago by NationsBank Corp., First Union has issued $250 million of the new preferred this month. The securities have paved the way for major stock repurchases.
Since September, banks have been selling preferred stock in new trust companies and using the proceeds to purchase new bank-issued subordinated debentures.
"The beauty of this convoluted security was that the dividends paid on the preferred were tax deductible and the preferred was considered Tier One capital for regulatory purposes," according to Richard X. Bove, bank analyst at Raymond James & Associates, St. Petersburg, Fla.
"In essence," he said, "a bank can buy back its common stock and issue the new preferred while maintaining its Tier One capital ratio." Tax law changes likely will eliminate the security, but over $20 billion already have been issued.
First Union's own repurchases were braked by its acquisition of Keystone Investments Inc., which it concluded on Dec. 11. The company issued 2.6 million shares in that deal and will now buy them back.
"First Union has been wanting to get on with repurchasing its shares for more than a year, but they have not been able to until now because of the KeyStone transaction, said Mr. Davis.
First Union set no timetable on the share repurchase program, saying only that it would buy back shares "from time to time" based on a host of factors, including the stock's price.
At the same time, the banking company also said it will account for the KeyStone acquisition as a purchase transaction.
