First Union Makes Changes

Tuesday, June 27th 2000, 12:00 am
By: News On 6

CHARLOTTE (AP) — First Union Corp. is closing its Money Store home equity loan business and selling up to 90 branches, part of a $2.8 billion restructuring to bolster its bottom line and stock price.

The nation's sixth-largest bank also said it will sell its mortgage servicing unit to Wells Fargo and put its credit card business on the auction block while focusing on its profitable core businesses.

First Union said it expects second-quarter earnings of 72 cents to 74 cents per share before restructuring charges of $3 to $3.10 per share.

That is well below Wall Street's consensus earnings expectation of 85 cents per share, according to the research firm First Call/Thomson Financial. First Union's second-quarter earnings report is due in mid-July. First Union's profits slumped 13 percent in the first quarter.

Despite the warning, First Union shares were up 6.25 cents to $27.875 in trading Monday on the New York Stock Exchange.

First Union employs about 70,000 people, while the Money Store, known for ads featuring retired baseball stars Jim Palmer and Phil Rizzuto, has about 3,000 workers.

First Union spokeswoman Laurie Hedrick said the bank has not calculated the impact of the moves on the company's work force.

The Money Store, known for ads featuring retired baseball stars Jim Palmer and Phil Rizzuto, has about 3,000 workers. In a statement from Sacramento, Calif., chief executive James E. Maynor estimated that about 2,350 workers, including 1,600 in Sacramento, would be affected.

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First Union warned shareholders twice last year that its earnings would falling short of expectations.

The latest stock price hit came after First Union executives backed out of an investors conference earlier this month.

``I know you have been frustrated by the fact that we have not provided any guidance,'' chief executive Ken Thompson told analysts. ``It's been frustrating to us as well. ... But we couldn't tell you part of the story without telling you the entire story.''

The restructuring follows criticism and slower earnings growth resulting from First Union's acquisitions of The Money Store and CoreStates Financial Corp. in the late 1990s.

Thompson, making his first address to analysts since taking over as CEO in April, said Monday's actions will cost $2.8 billion in restructuring and other charges and free up $1 billion in capital for reinvestment in core businesses and share repurchases.

First Union said The Money Store will cease all home equity loan originations and future home equity lending activities, but continue loan servicing and portfolio management.

Thompson said First Union will sell the servicing portfolio and platform of First Union Mortgage Corp. to Wells Fargo, as well as up to $13 billion in investment securities. It will seek a buyer for its consumer and commercial credit card portfolios.

The 90 bank branches to be sold are in areas where First Union lacks a leading market share.

First Union also will sell about $500 million in nonperforming assets and $400 million in poorly performing loans to improve its credit risk profile.

First Union, with assets of $254 billion and bank branches in 12 East Coast states and Washington, D.C., has stumbled since it bought CoreStates and The Money Store in 1998.

The Money Store, based in Sacramento, Calif., lends to people with poor credit histories. The $2.1 billion purchase made First Union the nation's top equity home lender.

After the CoreStates purchase, First Union lost 20 percent of the bank's 2 million customers. Many were frustrated with the bank's handling of basic services as well as its lack of commitment to lending to small businesses.

In March 1999, First Union laid off 5,800 workers companywide to trim costs and modernize branches by replacing tellers with telephone services. The bank later announced it was hiring as many as 2,000 new tellers to beef up customer service.