Shop till you drop: that's just what acquisition-happy First Union has done to its earnings and stock price.

• Author: Donsky, Martin
• Position: Special Report: Banking - Cover Story

SHOP TILL YOU DROP

That's just what acquisition-happy First Union has done to its earnings and stock price.

Fastest, tallest, biggest. Pick one, or more. Such superlatives are all essential words in the vocabulary of First Union Corp.

In the late 1980s, the Charlotte banking company was the fastest-growing financial institution in the Southeast. It is, today, the largest bank in a region that covers the Carolinas, Florida, Georgia and Tennessee.

Chairman Edward Crutchfield's official biography notes that when he became president in 1973 at age 32, he was "the youngest president of a major bank in the United States."

Two years ago, at the opening of its 42-story headquarters in downtown Charlotte, the bank proudly noted that the building was "the tallest structure between Philadelphia and Atlanta."

Even when Crutchfield cut the ribbon to open an outdoor plaza on South Tryon Street in Charlotte this spring, the bank couldn't resist a comparison. The city's "newest people place," the bank proclaimed, is a "community landmark larger than New York's Rockefeller Plaza."

Wall Street analysts and investors also use strong words for First Union. Their descriptions often begin with "big."

"Big" as in mistakes First Union made in its aggressive interstate growth strategy in the late 1980s -- a strategy that has turned the $40 billion-asset bank into the 15th largest in the country but caused earnings to fall flat the past two years.

"Big" as in loser, in terms of stock-market performance. First Union shares sold at $17.50 on the first trading day of 1985. On Aug. 1, 1990, the price was $17.63. An investor who bought back then and held on made 13 cents per share, less than 1 percent.

While the majority of bank stocks have lagged the past couple of years, First Union has done far worse than most. Investors would have done better to buy NCNB, whose shares appreciated nearly 100 percent in the same period, or First Wachovia, whose value increased about 75 percent. Investors' money would have grown more in a First Union certificate of deposit than in the bank's stock. One analyst has gone so far as to suggest that no other regional bank has "destroyed as much shareholder value by making acquisitions as First Union."

This criticism grates on First Union. Crutchfield and other executives say the game is far from over, that they have put together a team that will win in the 1990s. Bank watchers who have heard Crutchfield preach about First Union's long-term strategy are willing to give him the benefit of the doubt.

But, they say, if First Union doesn't do better for its shareholders, it might find itself on the receiving end of an acquisition offer once barriers to national banking finally fall. And then we might read about another "biggest": the biggest bank deal in the Southeast.

It is, in short, put up or shut up time for Ed Crutchfield. Even he says so.

Just look at the numbers. In 1987, First Union earned more than any other bank in the country. Among the nation's largest 25 banks, it ranked second in two key measures of financial performance, return on assets and return on equity.

Wall Street and the national media were dazzled. "A Modest Bank Makes the Big Leagues," a headline in The New York Times read. "Nothing could be finer, to bank in Carolina," The Economist proclaimed, singling out First Union as a perfect example of the efficient, profitable "superregional" bank that was taking capital and power away from debt-ridden money-center institutions in New York.

Contrast that with a recent study by Wheat, First Butcher & Singer of 35 major banks in the Southeast and Mid-Atlantic regions. First Union ranked 24th.

Instead of glowing headlines, First Union has found itself in a spat with a respected Wall Street analyst, Tom Brown of Paine Webber. Brown wrote a scathing report this spring, and First Union retaliated by taking away stock-trading business from Paine Webber. Business Week used the dispute in an article about analysts. "We cannot have companies we cover dictating what is included in our research reports or how we write them," Brown told the magazine.

Even American Banker chimed in, with an analysis of executive salaries. Among its conclusions: Crutchfield, who earned just over $1 million last year, was overpaid, and NCNB Chairman Hugh McColl, who earned $1.5 million, made too little.

What went wrong?

Analyst Brown explained it this way: "Ed Crutchfield, First Union's CEO, is one of my favorites to deal with because of his no-nonsense approach to the business. I just wish I could understand why he never saw an acquisition proposal he didn't like."

By Brown's estimate, First Union's profitability had declined 20 percent because it had gotten carried away with expanding across the Southeast.

Crutchfield won't respond publicly to Brown, but as far as he is concerned, Wall Street isn't interested in long-term strategy. It has, he'll tell you, a tendency to love 'em and leave 'em without establishing a meaningful relationship. In Wall Street's dictionary, that's long enough to make money.

Still, First Union did some sweet courting in the early days of interstate banking. "When you talk about First Union up here, there's more emotion involved," says one New York analyst.

This emotion comes from expectations that analysts, investors and others had...