Fleet Financial Group's plan to purchase of Advanta Corp.'s credit card unit has drawn a cool response from one Wall Street analyst.
Catherine L. Murray of J.P. Morgan Securities Inc. told clients she is "cautious" about the $500 million deal, which was unveiled Monday after weeks of speculation.
"Successfully integrating the credit card operation and managing it profitably are likely to be a challenge for Fleet," Ms. Murray said. The deal, she said, "looks cheap" and would likely be accretive to Fleet earnings by 4 cents in 1998.
Fleet would pay only a 4% premium on Advanta's managed receivables, in contrast to the 24% premium fetched by First USA from Banc One Corp. earlier this year.
Reversing Advanta's fortunes could prove difficult. "The challenge stems from the need to assemble a management team capable of turning around a troubled operation in the increasingly competitive credit card business," Ms. Murray said.
The analyst maintained her "market performer" rating. Though the banking sector is expected to churn out 12% to 13% earnings per share growth in 1998, she expects Fleet to deliver only 10% in the same period.
Ms. Murray raised her 1998 earnings estimates to $5.20 from $5.16 to reflect the merger, which is expected to be accretive in that year. But she took down her 1997 earnings estimates to $4.73 from $4.76.
Offering a different view, Morgan Stanley Dean Witter upgraded Boston- based Fleet to "outperform" from "neutral."
Analyst David Hilder said the transaction makes "strategic sense" for Fleet because it "advances Fleet toward its goals of becoming a major consumer bank and achieving geographic diversification,"
Mr. Hilder said the acquisition would untaint the 11 million shares Fleet realized from its pooling-of-interest acquisition of Quick & Reilly, the discount brokerage.
The only noticeable risk, the analyst said, is that Fleet is searching outside the company for a chief executive for its credit card operation.
The analyst raised his 1998 earnings estimates for Fleet to $5.20 from $5.15 to reflect the accretion.
Fleet's shares rose $1.6875 to $65.4375 on a day when bank stocks glided past other stocks.
The Standard & Poor's bank index rose 0.82%, while the Dow Jones industrial average advanced 0.11%. The Nasdaq bank index also jumped 1.28%, and the S&P 500 fell 0.29%.
Meanwhile, many bank analysts on the Street urged investors to snap up bargains in the banking and financial sector.
Analyst Lori Appelbaum of Goldman, Sachs & Co. raised the rating of Fifth Third Bancorp to market "perform" from "neutral," and National City Corp. to "outperform" from "perform."
Analyst Fred Cummings of McDonald & Co., Cleveland, citing good value, raised his rating on Star Banc Corp. to "aggressive buy" from "buy."
Bank analyst Merrill H. Ross of Friedman Billings Ramsey & Co., Arlington, Va., shot off a note to clients stating that "opportunities litter the landscape." David C. Stumpf, bank analyst at A.G. Edwards & Co., St. Louis, said "the recent market correction as an excellent buying opportunity in bank stocks."