Analysts are beginning to warm to First Union Corp. again.
Deutsche Banc Alex. Brown on Thursday upgraded the stock to "buy" from "market perform," while analysts at American Banker's quarterly roundtable noted its shares trade at a discount to Bank One Corp. of Chicago in its price-to-earnings multiple, even though First Union has made comparable progress in restructuring its business. (A transcript of the session will appear in an upcoming issue.) George A. Bicher, an analyst at Alex. Brown, said the restructuring had "inoculated the company against asset quality erosion."
First Union, of Charlotte, N.C., had fallen out of favor after a series of acquisitions under former chief executive Edward Crutchfield failed to produce the expected returns, and the company had to restate earnings several times.
Under Ken Thompson, who was promoted to CEO in April after Mr. Crutchfield stepped aside because of health problems, First Union has been focusing on smaller deals and selling or closing unprofitable businesses, notably Money Store, a subprime lender it had purchased under Mr. Crutchfield.
Though he did not change his earnings projections, Mr. Bicher said First Union stock will benefit as investors regain confidence. On Thursday its shares were up 31.25 cents, or 1.03%, closing at $30.5625.
Analysts at the roundtable were divided on whether now is the time to buy First Union shares.
Frank J. Barkocy, executive vice president and director of research at Keefe Managers Inc., spoke favorably of First Union, but Andrew B. Collins of ING Barings said he would not recommend it - "simply because there is no earnings growth."
And while Mr. Collins sees First Union as a possible candidate for takeover by one of the larger investment banks looking to answer Chase Manhattan Corp.'s deal for J.P. Morgan, Mr. Barkocy said that "it would be foolish at this phase of their recovery to look to sell. As they turn further their fundamentals you can attract a much higher price for that entity," he said.
Mr. Bicher downgraded Wells Fargo & Co. to "market perform" from "buy." It "has no opportunity for expanding its price-earnings multiple," he said.
Mr. Collins took the opposite view.
"Selling at 14.8 times next year's earnings, it is very attractively priced," he said. He also said Wells might well be one of the fastest-growing banks in the country.
"If we look at revenue growth," Mr. Collins said, "it went from 7% in 1999 to 10% in 2001, and in addition they have the best Internet offerings out there" -serving two million online customers - and "the muscle to move into online brokerage quite nicely." He gave Wells a price tag of $55.
Wells shares were down $1.3125, or 2.81% on Thursday, closing at $45.4375.
Elsewhere, concerns about the effects of the Morgan-Chase deal eased on Thursday. Analysts had feared that, as the new owner of Morgan, Chase might take away business Morgan had outsourced to Bank of New York, mainly portfolio accounting and ancillary services. "There was market speculation that J.P. Morgan would pull its sizable custody from the Bank of New York," Robert V. Ax of Keefe Bruyette & Woods Inc. wrote in a report.
But Mr. Collins said that these contracts are not easily broken. And even if Chase were to cut the ties, Bank of New York has a good termination agreement in place.
Bank of New York closed at $52.25 Thursday, down 18.75 cents, or 0.36%.