Stocks: Montgomery Cool to Banc One Deal; Says 1st USA Wont Payoff till

A week after Wall Street analysts gave a standing ovation to Banc One Corp.'s acquisition agreement with First USA, one observer has emerged with a word of caution.

Analyst Diane Merdian of Montgomery Securities, San Francisco, reiterated a "hold" rating on Banc One shares, projecting earnings well below other analysts' estimates.

A chorus of support from analysts helped Banc One shares to bounce back from a decline of $3.50, to $41.625, on the day of the announcement. On Wednesday, shares were at $44.625, up $1.125.

Ms. Merdian revised her earnings per share estimate to $3.30, from $3.60, for 1997, and for 1998 to $3.85, from $3.97, arguing that the acquisition may not be accretive to earnings as soon as other analysts think.

While most Wall Street analysts predicted that the purchase would be accretive by 1998 as Banc One indicates, Ms. Merdian said that the transaction would not cross an "earnings neutral point" until 1999. She said earnings would not pick up until after the year 2000.

Ms. Merdian, who said that she gave serious consideration to upgrading stock, stressed that she was not advising clients to sell Banc One shares. "There is not a lot of downside to the stock, but if you're looking for top-quartile performance, it's not going to be in this stock."

The analyst pointed to First USA's growth rate: 130% in 1993 and 1994, 60% in 1995, and 36% in 1996.

One Banc One investor, Paul Baran, chief investment officer of Central Fidelity National Bank, a unit of Central Fidelity Corp., Richmond, Va., shared Ms. Merdian's skepticism.

"Banc One is certainly buying a company with a great record, but they paid a hefty price, and the timing is suspect," Mr. Baran said. "This late into the economic cycle. I don't know whether it's the right time with the likelihood of problems in the consumer sector."

Analyst Gerard Cronin of John Hancock Funds Inc. also recognized the risks of the deal, but remains positive about the transaction.

"If the growth rate of First USA slows-or more disastrously, if credit quality deteriorates-we may be looking back and saying that it was a horrible deal," Mr. Cronin said.

Even so, he said there are some "intangible" benefits to the deal, such as the addition of First USA's management team and of technology that will improve Banc One's ability to gauge the behavior of borrowers.

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