First Fidelity Securities Corp.'s decision to settle fraud charges involving its municipal bond underwriting activities shouldn't be a major setback for its new parent, First Union Corp., or for the banking industry at large, experts said Wednesday.

The broker-dealer is paying $2.3 million to settle Securities and Exchange Commission charges that two former employees gave kickbacks to a New Jersey government official and an adviser to secure lead underwriter status in certain bond offerings. The unit - whose parent, First Fidelity Bancorp., merged with First Union Jan. 1 - neither admitted nor denied wrongdoing.

Although the settlement requires First Fidelity Securities to withdraw its registration as a municipal securities dealer, another First Union broker-dealer subsidiary will be able to take up that business, said Andrew Wertheim, assistant regional director in the SEC's Northeast office.

"They have represented to us that they have adopted policies and procedures to avoid future violations, and we're going to hold them to that," Mr. Wertheim said.

The settlement is part of the SEC's crackdown on kickbacks in exchange for underwriting business, said John S. McCune, president of Norwest Investment Services, Minneapolis, and a member of the Municipal Securities Rulemaking Board, which governs the municipal bond market.

Asked whether other banks active in capital markets would be tarred by First Fidelity's settlement, Mr. McCune replied: "Not at all. This is one of a number of enforcement proceedings that have come down the pike, and it just happens to involve a bank."

Indeed, the enforcement action was initiated last February, several months before First Union struck its merger agreement with First Fidelity.

First Union referred calls to its First Fidelity subsidiary. A spokesman there would not comment beyond a five-paragraph statement issued Tuesday.

In the statement, First Fidelity called the actions of its former employees "not only unauthorized and clandestine, but inconsistent with First Fidelity's standards of professionalism and business ethics." Both employees were terminated in November 1994, the company said.

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