Norwest Corp.'s decision to pay almost twice book value for First United Bank Group, a collection of banks in New Mexico and West Texas, was greeted with some concern by the stock market. but executives of the Minneapolis-based banking company defended the deal.

"It's a fair price for both parties and certainly within our own guidelines," Norwest president Richard M. Kovacevich said of the decision to pay $495 million in stock for First United.

The deal, one of the largest negotiated this year, was announced after the market closed on Tuesday. The company's stock fell $1 to $26.25 a share Wednesday. Shares of First United, which is controlled by the Ford Bank Group of Lubbock, Tex., lost 25 cents to $27.25.

Formed in March

First United, which has $3.8 billion of assets and 79 branches in New Mexico and Texas, was formed March 25 when United New Mexico Financial Corp. and the Ford group merged. The bank earned $15.9 million on a pro-forma basis in the first six months of 1993.

The purchase, which is expected to be completed in the first quarter of 1994, will include $400 million of assets that First United expects to acquire later this year. The purchase price equals about 1.9 times the midyear book value of First United, analysts said.

Mr. Kovacevich, whose profitable company has been on an acquisition tear for two years, said Norwest will continue to look selectively for purchases in New Mexico and Texas.

Norwest, the nation's 14th largest bank company with $47.8 billion of assets, has outposts in 15 states, including recent expansions into Arizona, Colorado, and California.

Analysts said they have few arguments with Norwest's acquisition strategy but are somewhat disappointed with its willingness to pay such high prices.

Bankers in the Southwest said they understood that several banks, including Banc One Corp., competed for First United. A Banc One spokesman was not available for comment.

Long-Term Investment

Kenneth Puglisi, an analyst at Chicago Corp. who reduced Norwest's stock to "hold" from "buy" shortly before the deal was announced, said the company's sterling credit quality and revenue potential has been fully valued by the market. But he recommends Norwest only for investors with long-term horizons.

"I continue to think it's one of the best-run banks in the country," Mr. Puglisi said. "It's a safe-deposit-box stock. Put it away and you'll do just fine."

Norwest said the acquisition will be slightly dilutive to earnings in the first year of operations and begin to add to earnings per share beginning in the second year.

"It's not a home run," said Sandra J. Flannigan, an analyst at Merrill Lynch & Co., "but it pencils out to an acceptable return on investment."

In an interview Wednesday, Mr. Kovacevich said Norwest has no grand plans to build statewide franchises in Texas, New Mexico, or other states. In Dallas and Houston, for example, markets are too saturated for Norwest to build any significant market share.

Instead, Mr. Kovacevich said, Norwest will continue to move where it feels it can build significant market share in a short time. In oil-rich West Texas, he noted, First United has 19 banks and is No. 1 in nine of 10 markets. The company is first or second in deposit share in 21 of 30 New Mexico markets, he added.

In both Texas and New Mexico, Norwest is up against St. Louis-based Boatmen's Bancshares, another acquisitive regional. Boatmen's bought Sunwest Financial Corp., New Mexico's biggest bank, in 1992. It also inherited a branch in El Paso from Sunwest, and last week announced a deal to buy First Amarillo Bancorp. in West Texas.

Joseph A. Stieven, who follows Midwest banks for Stifel, Nicolaus & Co. in St. Louis, said Boatmen's now faces tough competition in the Southwest.

"Norwest is there is to make a profit," he said. "I don't think this will adversely affect Boatmen's, but they'll have to run a little harder."

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