Has Edward E. "Fast Eddie" Crutchfield matured into a responsible elder statesman, more concerned with stock price than asset size?

The chairman and CEO of First Union Corp. certainly gives every impression that his dealmaking days are behind him. Those transactions, 55 at last count, took First Union from $20 billion in assets to $127 billion in just 10 years and created the nation's seventh-largest bank, with branches from Connecticut to Florida.

Now, in an unusually frank in-depth interview with American Banker, Mr. Crutchfield insists that he knows when to quit and that now's the time. He swears it: no more big market-extension deals like the $5.4 billion acquisition of New Jersey's First Fidelity Bancorp. that First Union completed on Tuesday.

But Mr. Crutchfield, as restless as his old nickname suggests, has by no means laid his ambition to rest. In the same interview, the 54-year-old executive discussed his plans to expand First Union's nontraditional lines of business, particularly capital markets and capital management.

No more deals? What Mr. Crutchfield means is no more bank deals. He still wouldn't mind buying a mutual fund company or two. Never one to beat around the bush, Mr. Crutchfield plainly states his goal: to build First Union into a $100 billion mutual funds giant by the year 2000, through acquisitions as well as internal growth.

Q.: Are you satisfied so far with First Union's effort to build Wall Street-type businesses in capital markets and capital management?

CRUTCHFIELD: On the capital markets front, we're well begun, certainly. I'm happy with the beginning of it. We made two bets. The most important one was that there is a market there, meaning middle-market America, for capital markets services.

The second question for us was: Can we attract the talent from Wall Street to little Charlotte, N.C.? We've brought in 125 Wall Street professionals, every one of them moving from New York to Charlotte, and we've lost none who've gone back to New York. Of the 125, we lost one who stayed in Charlotte and started his own business, which is the nature of the breed to some extent.

Q.: What's next on your to-do list?


I think capital management will show even bigger percentage increases in earnings than capital markets. There's something like $8 trillion worth of assets that are going to pass hands in the next 10 years. Historically, the banks have sat on their butts and let it pass to Merrill Lynch. That's why they manage $600 billion today and have more IRAs than the top 100 banks combined, and sold more CDs last year than any bank in America. What I'm trying to do is copy them in capital management.

We don't have that far to go to catch up to Merrill Lynch. Guess who has the most capital and makes the most profit? And now has the largest branch network? And a number of registered brokers that puts us eighth in the U.S. in terms of all brokers?

What we haven't done is anywhere near live up to our potential. Just take mutual funds as a "for instance." I think you're going to see the same kind of consolidation in the mutual funds business as you've seen now in the banking business.

And I'd like to see our company be a $100 billion mutual fund manager in the next three to five years. We're about $11 billion today, so we have a ways to go. But I'll predict for you we'll do that; we'll be $100 billion by the year 2000. Maybe sooner.

Q.: Does that imply you'd have to buy some really big companies?

CRUTCHFIELD: Not really. You could buy two or three $10 billion mutual funds and, frankly, what we would pay for them, we wouldn't even notice in our income statement. In other words, there's a hell of a lot of difference in buying a $10 billion mutual fund and buying a $10 billion bank.

We paid about $140 million for Lieber & Co. We regard that as buying a neighborhood savings and loan today. So what I'm saying is, you can be a $100 billion mutual fund player and not take a lot of earnings dilution.

Q.: But how can you get to $100 billion by buying three $10 billion funds?

CRUTCHFIELD: We're selling mutual funds internally today at the rate of $100 million a month. Let's just do the math. From the start of 1995 to the year 2000 is 60 months. That's $6 billion, and that's just our rate of sales in 1995. We'll be doing $200 million to $250 million, I hope, in another year.

Q.: So internal growth on top of acquisitions?

CRUTCHFIELD: Yeah. In fact, I think internal growth is going to be more of the answer than acquisitions.

I think we'll look to mutual funds to be our source of funds more than core deposits in the next five years. Ten years from now, I think they'll dwarf core deposits.

Q.: You clearly seem very excited about the potential in capital markets and capital management. So why are you still buying traditional branch networks like First Fidelity?

CRUTCHFIELD: That's a good question. Now let's get real. Three years ago, we were only a $50 billion bank. I couldn't get started in capital markets. I wanted to do it 10 years ago, when I was a $20 billion bank. But if I tried to hire these guys from Wall Street, they'd laugh at me.

Secondly, you've got to transition to these businesses. Right now, the traditional banking business is still paying the rent. We have 40,000 middle-market companies from Connecticut to Florida. A small fraction of them use capital market products. So there's still a lot of money in traditional banking, and I've got to do the best I can to make money there.

Let's look at who the competition is. The top 10 companies dominate the mutual funds business. Fidelity and Vanguard have more mutual fund balances than the next 100 companies combined. In credit cards, the top dozen companies are running the other 300 out of business very fast.

Now my point is, if you aren't big enough in any of those lines of businesses to be a scale player, you ain't going to be in that business. So what I'm coming around to showing you is, one reason you buy a First Fidelity is sheer bulk, sheer volume.

Our purpose in buying First Fidelity was to get bigger, but it's not assets. If I could have bought the damn thing with no branches, I would have. That wasn't what I was after. I wanted the customers.

Q.: At the same time, you've fretted, in your public statements, about the perils of getting too big, of big bureaucracy.

CRUTCHFIELD: Let's see if I can reconcile that for you. I said about a month ago that we are no longer going to do major, out-of-market deals for the pretty significant future - years.

We now have achieved the strategic objective we set 10 years ago. There's nobody out there who can roll up my flanks, who can say, Crutchfield, our costs are so much cheaper than yours, we're going to price your ass out of business. Nobody can do that. Also, nobody can come in and say, our product is so much better than First Union's, we can steal his business.

I think the stock market has not awarded our stock a high enough P/E. And a lot of it is because they thought I didn't have enough sense to know when to quit. I do have enough sense to know when to quit.

I now think our strategy is coherent, it speaks for itself, and I hope a byproduct of that is we'll see our P/E go up because the fear of dilutive acquisitions will begin to recede from the market. It's going to take a while. It's not going to happen overnight.

Q.: What's the end game for First Union? Are you building up an East Coast power to marry with a West Coast or Midwest power?

CRUTCHFIELD: That may be Hugh McColl's end game, and BankAmerica's, but it's not my end game. That's absolutely not what my view of the future is. Here is my view of it.

With First Fidelity, we now have the East Coast national media time zone for TV in our sights. You could buy a 30-second spot on the CBS evening news, just the East Coast buy. And we've got 2,000 branches and 11 million folks up and down the East Coast who will see it.

My point is, the definition of a "national bank" won't necessarily be one that literally has a brick-and-mortar presence from one ocean to the other. My end game is to get my stock to $100 a share. It's harvest time (for First Union shareholders). They've been very patient.

Q.: Some analysts have questioned your comparatively low capital ratios and rather high overhead. Does that make First Union vulnerable to an economic slowdown?

CRUTCHFIELD:If we make $6.31 a share next year - we told the world we'd do that - that is an 18.3% return on equity. That's one hell of an ROE for a bank. So I'm not going to cut that discretionary spending. I don't give a damn what the overhead ratio is in 1996 if I can hit those numbers.

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