THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, January 28, 1995 TAG: 9501280195
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
TYPE: Interview
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 105 lines
In less than a decade, Edward E. Crutchfield Jr. has expanded First Union Corp. almost tenfold into a $77 billion banking company.
It's a huge accomplishment, but the outspoken chairman and chief executive officer wonders whether First Union can sustain that sort of growth without falling flat on its face.
``I roll around in bed at night worrying about it,'' he told a Hampton Roads Chamber of Commerce luncheon in Chesapeake this week. ``I cannot think of single big old company that has not had its comeuppance sooner or later.''
Corporate giants like IBM Corp., General Motors Corp., and Sears, Roebuck & Co. have stumbled badly in recent years because they no longer listened to their customers, he said.
And Charlotte-based First Union, Crutchfield said, could be hobbled by insensitivity to its customers. But to his way of thinking, First Union still has to grow if it expects to survive.
``I'm an unapologetic believer that banks and certain other industries are going to have to get big or be very small,'' he said. ``The middle-sized guy is in trouble.''
Crutchfield's goal: to make First Union one of the 15 or so banks that, within a decade, will have assets of $200 billion to $300 billion and will do business nationwide.
The bulk of First Union's assets might still be on the East Coast, Crutchfield said. ``But you will think of us as a household name, just as you think of Prudential and Metropolitan as national life insurers.''
To accomplish that, First Union will continue acquiring other banks and will expand into less traditional services, including investment banking.
Crutchfield, who took over as First Union CEO in 1984, joined the First Union National Bank in 1965 in its bond department. He was named president of the bank at age 32 in 1973.
After expanding into Georgia, South Carolina, Tennessee and Florida, First Union established a major presence in Virginia two years ago by acquiring Dominion Bankshares Corp. in Roanoke. It expanded that presence three months later by buying the First American banks of Virginia, Maryland and Washington.
Another transaction in Virginia is pending. First Union is in the process of buying Ameribanc Savings Bank, a Northern Virginia thrift with assets of $1.1 billion and branches in Hampton Roads. First Union also has agreed to acquire three thrifts in Florida with combined assets of $6 billion.
Today, it's the ninth-largest bank holding company in the country. But First Union's aggressive pursuit of merger candidates has been hampered by the relatively high prices being demanded for banks, Crutchfield said. The wide spreads between their cost of funds and what they earn from loans and investments have provided many banks with record profits in 1993 and 1994.
Some bank presidents ``don't know what the difference is between being lucky and being good,'' Crutchfield said. ``So while there's no fear out there, there are no sellers.''
``We're being patient until more chaos comes back into the market and scares some of these bank presidents and boards of directors.''
The consolidation of banks will pick up steam, partly because smaller institutions cannot provide the array of financial services that their customers are seeking, Crutchfield said.
Some small banks, he noted, offer customers coffee and doughnuts and the opportunity to meet with the president. That amounts to hospitality, not delivery of financial services. First Union, he said, would rather concentrate on providing financial products.
``If you want coffee and doughnuts, go to Dunkin' Donuts,'' he said.
Like several large banking companies, First Union has advocated breaking down the Depression-era barrier between commercial banking and investment banking. That barrier, the Glass-Steagall Act of 1933, has barred the nation's commercial banks from underwriting and distributing securities.
But Crutchfield, like other proponents of abolishing the wall between commercial banking and investment banking, argues that commercial banks continue to lose business to the likes of Merrill Lynch & Co. and Goldman, Sachs & Co. because they cannot meet their customers' needs.
``I don't want to turn my bank into an investment bank,'' he said. ``I want a double-barreled approach. Where it's appropriate for a customer to have a five-year bank loan, I want to be able to give that to him. If what he really needs is a $30 million high-yield, public-debt offering, I want to be able to give that to him.''
The chances that Congress will provide commercial banks with broader securities powers this year are better than even, Crutchfield predicted.
First Union, however, isn't waiting for a change in the nation's banking laws before offering investment banking services.
For the past three years, it has been building a unit that performs such investment-banking services as syndicating corporate loans, arranging equity financing and selling derivatives.
Last year, this Capital Markets Group earned $150 million before taxes and is expected to make $500 annually within three years.
The biggest threat facing First Union, Crutchfield said, is not a shortage of services to sell or competition from the likes of Merrill, Lynch and Goldman, Sachs. It's the bureaucratic paralysis that sets in when companies become big.
``The enemy is not going to take us over from outside,'' he said. ``If we get whipped, we are going to get whipped inside the walls. We are going to whip ourselves.'' ILLUSTRATION: GARY C. KNAPP
Edward E. Crutchfield Jr.
Chairman/Chief Executive Officer
First Union Corp.
KEYWORDS: PROFILE by CNB