First Union Corp. appears to be bearing the burnt of investor concerns about declining net interest margins in the banking industry.

On Thursday, the Charlotte, N.C.-based banking company's stock price fell $1.75 a share, to $37.875, setting a new low for a year in unusually active trading.

"We're strictly baffled by the stock price," said Sean Fox, manager of investor relations at First Union.

While bank stocks in general were beaten up in the past two trading sessions on fears of a runup in interest rates, most still are selling above their lows for the year.

At the close of trading Thursday, many stocks were off by $1 or more. Bankers Trust was off $2.375, at $74.75, and Wells Fargo fell $2.50, to $105.875.

The Dow Jones Industrial Average fell $36.89 points, to 3624.98.

Caught Up in the Trend

Margin compression has become a hot button for bank stock investor, and First Union "seems to be the personification of that trend," said Anthony Davis at Dean Witter.

Among the regional banks that he follows, the average net interest margin fell 8 basis points in the third quarter to 4.47%, from 4.82% in the second quarter

In the same period, First Union's net interest margin plunged 27 basis points to 4.67% from 4.92%.

A third of that decline, though, was due solely to the recent acquisition of thrifts with lower margins than that of First Union, Mr. Davis noted.

Enthusiastic Buyer

Right now, investors seem to be taking a show-me attitude toward the acquisitions, said J. Frederick Meinke art Kemper Securities in Chicago.

But not Robert Bonelli, a fund manager at Ernst & Co. "Tomorrow, I'll be buying some more of the stock," he said.

Mr. Bonelli said he thought the stock was cheap when it was trading in the low $40s. At Thursday's levels, its an "absolute giveaways" he added.

Stephen Berman at County Natwest USA said the stock is trading at about 7.6 times his 1994 earnings estimate of $5 a share.

That multiple is probably among the lowest of the regional banks, he said.

Though Mr. Berman said he thinks the stock is "cheap" at this level, he is not changing his neutral stance on First Union for now.

If the stock gets down to the mid $30s, though, Mr. Berman said he would seriously consider recommending the stock.

Tim Rayl at Southeast Research Partners in Boca Raton, Fla., said he's been bearish on southeastern banks for months, feeling that they got pricey on a valuation basis.

But given the steep decline in First Union which he called "one of the best integrated regionals in the country," Mr. Rayl said he'll be watching the stock as a buying opportunity.

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