First Union Eyes Brokerage

First Union Corp., the country's sixth largest banking company, advanced deep into the nation's heartland Monday by unveiling plans to buy Chicago brokerage Everen Capital Corp. for $1.1 billion.

The stock deal will give First Union a national platform for its brokerage services with the addition of Everen's presence west of the Mississippi, the Charlotte-based bank said.

Everen has offices in 28 states and more than 1,800 investment consultants. Its highest concentrations of offices are in Illinois, California, Wisconsin, Ohio, Texas and Colorado.

First Union's securities brokerage operations are concentrated largely in the eastern half of the country.

The announcement comes as large U.S. commercial banks continue to look to buy brokerages as a means to grow their business as the barriers between the two industries continue to break down.

The acquisition also fills a marketing need created by First Union's purchase of Wheat First Butcher Singer Inc., an investment banking, underwriting and brokerage firm, in January 1998.

That deal created the largest retail brokerage in the Southeast and eighth largest in the nation. Now with Everen, First Union's brokerage business has a national scope.

Analyst John Moore of Wachovia Securities in Charlotte said First Union's motivation for making the deal was "less regional than product."

"This acquisition put their non-interest income up to around 55 percent," he said. "I'm only aware of one other bank in the country, First Tennessee in Memphis, which has that kind of ratio."

"There are plenty of banks to buy, but I don't know if many of them have the growth profile (First Union) is looking for," Moore said. "What they are looking for is subsidiaries that grow faster than the banking industry."

So far, Wall Street isn't crazy about the deal.

"Time will tell," Moore said. "Right now the stock price is hurting, but in the long run they need to explore their options."

After the acquisition, the combined companies would have $147 billion in brokerage assets and three million total brokerage customer accounts, making it the nation's sixth-largest brokerage, First Union said.

Last week, First Union chairman Ed Crutchfield said one way for his company to expand without merging with large banks would be to purchase brokerage firms and other financial institutions.

Answering a shareholder's question at the bank's annual meeting, the First Union executive discussed his desire to expand to the West Coast. However, Crutchfield could have been referring to other parts of the country as well.

The transaction has a fixed exchange rate of .555 shares of First Union common stock for each Everen share, or $30.63 per Everen share, based on First Union's closing price of $55 per share on April 23.

"This is an excellent partnership that gives First Union a nationwide securities business," said Ken Thompson, First Union vice hairman and head of its Capital Markets Group.

Everen has been independently owned since an employee buyout from Kemper Corp. in 1995. Employees own approximately 60 percent of the company.

The transaction price excluded the value of an employee retention pool that First Union has agreed to establish. The pool, worth approximately $87 million, will be issued over a three-year period to an undisclosed number of Everen employees, according to First Union.

By Paul Nowell