Nations Bank And First Union May Shift Focus

The two banks have spearheaded the swift consolidation of US commercial banking in recent years. Last year First Union bought First Fidelity, based in Newark, New Jersey, for $5.4 billion, and it now has branches in 12 states.

NationsBank surprised Wall Street in August with its $9.5 billion acquisition of Boatmens Bancshares in St Louis. The deal will make it the nations fourth largest bank, behind Chase Manhattan, Citibank and BankAmerica. But both banks last week told analysts they would be changing their focus in the next few years.

First Union announced it would now aim for a return on common equity of 18 to 20 per cent, up from the present target of 16 per cent. Investment in technology is meant to improve efficiency in retail banking.

 

But growth in shareholder value is to come from the banks fee-based businesses, such as investment banking and asset management. By 2000, according to Edward Crutchfield, chief executive officer, fee-based income will account for 40 per cent of revenues, up from the current 30 per cent.

First Union now has the third-largest mutual fund business of any bank, built by acquisitions. It intends to expand its fund management business from pre-tax income last year of $220 million to $1.15 billion in 2000.

Its capital markets group, which concentrates on servicing small and medium-sized companies rather than competing directly with Wall Street, is also targeted for growth.

Hugh McColl, chief executive of NationsBank, confirmed to analysts that his ambition remained to expand into California and become the first truly national bank. However, McColl appeared to suggest that expansion to the west coast might have to be via investment in technology and reaching customers electronically, rather than through a big acquisition.

He pointed to the companys successful cost-cutting in its traditional branch network, with more than 100 offices sold or closed this year. He also expressed an interest in buying a small investment banking firm outside New York City which would handle small and medium-sized businesses, in a strategy which appears similar to First Unions.