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First Union lowers outlook
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May 25, 1999: 4:25 p.m. ET
Projects '99 net of about $3.50 per share, 50 cents lower than forecasts
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NEW YORK (CNNfn) - First Union Corp. issued a profit warning Tuesday, telling investors earnings for the rest of the year will be sharply lower due to higher-than-expected acquisition costs and increased spending on new business strategies.
The Charlotte, N.C.-based bank said it expects 1999 net income of about $3.3 billion to $3.4 billion, or about $3.40 or $3.50 per share, compared with the bank's earlier projections of about $4.00 per share.
For the second quarter, First Union (FTU) said earnings are expected to be in the range of $770 million to $800 million, or 80 cents to 83 cents per share. That compares with the consensus estimate of 97 cents a share from earnings tracker First Call Corp. for the April-June period.
The revised outlook doesn't include previously announced non-recurring gains of 8 cents per share in the second quarter and 20 cents per share for the year, First Union said. It also excludes merger-related and restructuring charges.
In 1998, First Union reported earnings of $3.7 billion, or $3.77 per share, excluding merger-related and restructuring charges.
News of the shortfall sent shares of the company tumbling nearly 9 percent to 45-15/16 amid concerns First Union could be facing a difficult period.
"We frankly have given up on this stock," said Lawrence Cohn, an analyst at Ryan Beck & Co. "This is the second time around and we think it is going to take a long time for this stock to repair itself."
First Union, with $223 billion in assets, has built the largest banking franchise on the East Coast through a series of mergers, including the acquisition of Philadelphia-based CoreStates in April 1998.
But revenue growth from the CoreStates acquisition, among other things, did not meet expectations, prompting First Union to warn Wall Street analysts to cut their earnings estimates for the second straight quarter.
First Union said revenue growth in the former Core States Financial Corp. region would lag expectations because of acquisition expenses.
"This is an important transition year as we strategically reposition our company for the future," Chairman and CEO Edward E. Crutchfield said. "In a time of exponential change, we believe that long-range profitability and success require investment for the future -- even though 1999 earnings will be affected."
The bank also said it is investing in employee training for its Future Bank project, as well as Internet technology in hopes of doubling its number of Web customers by the end of the year.
The bank has set an internal goal of shifting about 25 percent of its customers to Internet or telephone banking by 2001. Expenses on its "brick and mortar" operations could be cut by about 10 percent as it trims its network of 2,400 branches serving some 16 million customers, he said.
First Union expects to boost its online customer base to 1.5 million customers by year end and 5 million by 2001 from 700,000 today as it expands its Internet presence.
The also company plans to update its Internet banking site this summer and launch an online brokerage service in July. The moves will help the bank build a national presence while taking on discount brokers and fledgling "e-banks."
"There's nothing that Schwab has that we can't offer this summer, so we're simply going to war with them," Crutchfield said, referring to Charles Schwab Corp.'s online brokerage business.
The company also announced plans to buy back up to 50 million of its shares. 
-- from staff and wire reports
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First Union Corp.
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