Monday Media Contact:
June 26, 2000 Ginny Mackin 704-383-3715
Mary Eshet 704-383-7777
Investor Contact:
Alice Lehman 704-374-4139
Herb Althouse 704-383-9404
FIRST UNION TO IMPLEMENT STRATEGIC REPOSITIONING
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Will Exit Non-Core Businesses; Reduce Risk and Focus on High Growth Businesses;
Expects Lower Second Quarter Earnings
And $2.8 Billion Net Restructuring Charge
CHARLOTTE -- First Union Corporation (NYSE:FTU) today announced a strategic
repositioning for the future that will intensify the company's focus on
high-growth businesses and improve its risk profile as it exits non-core lines
of business.
The disposition of various businesses and assets is currently estimated to
result in restructuring and other charges of approximately $2.8 billion after
tax, net of an estimated $1 billion in after-tax gains from the sale of non-core
businesses. These actions will free up approximately $1 billion of capital for
reinvestment in core businesses and share repurchases. While the bulk of the
charges are related to a decision to discontinue home equity lending activities
at The Money Store, the company is taking a number of other actions to
reposition itself for the future. As a result, First Union has established a
long-term core annual EPS growth goal after 2001 of 10 percent to 12 percent.
First Union now expects earnings for the second quarter of 2000 of approximately
$0.72 to $0.74 per share before the restructuring and other charges of
approximately $3.00 to $3.10 per share. First Union's core business lines are
expected to contribute $0.63 to $0.65 to those earnings, with balance sheet
strategies contributing the rest. Economic and market conditions that are
adversely affecting core earnings include higher interest rate levels, soft
capital markets for a number of securities products and services and weakness in
parts of the health care industry. These conditions are currently affecting many
in the financial services industry. Continued deterioration in The Money Store's
performance is also adversely affecting second quarter earnings. First Union
said that contributions to earnings from its core business lines and balance
sheet strategies are expected to be relatively flat for the rest of 2000.
Following the completion of the restructuring, balance sheet strategies are
expected to contribute less to total operating earnings beginning in 2001 and
beyond.
"Over the past six months, we have conducted an intensive strategic review of
our businesses," said Ken Thompson, First Union president and chief executive
officer. "Together with the company's senior management team and the Board of
Directors, we evaluated each of our business lines using strict financial and
strategic criteria.
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FIRST UNION TO IMPLEMENT STRATEGIC REPOSITIONING/page 2
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"First Union will exit businesses that do not meet our performance criteria and
where we do not have the scale to compete effectively," he said. "We will
concentrate on business lines with higher growth opportunities such as asset
management, brokerage, wealth management, small business banking, e-commerce and
high growth areas within capital markets. We believe these business lines are
best positioned to leverage the company's strong foundation of a superior
multi-channel distribution network, an extensive product set and deep customer
relationships. This gives our company a sharper focus and a stronger platform
for growth."
As an essential element of this strategic realignment, First Union will reduce
its interest rate risk by the sale of up to $13 billion of investment securities
that have yields below current market interest rates. The company will also
improve its credit risk profile by the accelerated sale of approximately $900
million of poorly performing loans, principally in the health care industry.
Following an extensive review of The Money Store, First Union has determined
that its long-term profitability outlook and risk profile are inconsistent with
First Union's strategic plan. Accordingly, First Union will cease The Money
Store home equity loan originations and terminate all future home equity lending
activities related to The Money Store other than loan servicing and portfolio
management.
Thompson said: "Although taking these actions with respect to The Money Store
requires that we record substantial restructuring and other charges, we have
decided to take these actions now so that we can focus on our core businesses,
reduce our risk and create more stable earnings."
These charges, substantially all of which are expected to be recognized in 2000,
are currently estimated to amount to approximately $3.0 billion after tax in the
second quarter. The estimated $800 million in remaining charges and estimated $1
billion in gains from the sale of non-core businesses are expected to be taken
during the rest of the year. Of the total charges, approximately $1.7 billion
represents a write-off of Money Store goodwill and therefore does not reduce
regulatory capital.
First Union said it planned to take the following additional actions as part of
the strategic restructuring:
o Mortgage: The servicing portfolio and platform of First Union Mortgage
Corp. will be sold. The sale is expected to close in the third quarter of
2000. First Union intends to continue to offer First Union labeled mortgage
loans to customers.
o Credit Cards: First Union is seeking a suitable buyer for its consumer and
commercial credit card portfolios. First Union intends to continue to offer
First Union labeled credit cards to customers.
o Branch Offices: First Union will sell approximately 80 to 90 branch office
locations in markets where it lacks a leading market share.
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FIRST UNION TO IMPLEMENT STRATEGIC REPOSITIONING/page 3
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o Balance Sheet Restructuring: First Union will sell investment securities
having a book value of up to approximately $13 billion. This restructuring
is expected to reduce interest rate sensitivity and also free up capital
that can be reinvested in core businesses or used for share repurchases.
o Improve Credit Profile: First Union will sell approximately $500 million in
nonperforming assets (NPAs) and $400 million in poorly performing loans to
improve its credit risk profile. The company expects to recognize
approximately $155 million (pre-tax) in losses on the NPAs it intends to
sell. First Union will also add approximately $260 million (pre-tax) to its
loan loss reserve. In addition, other reserves totaling $175 million
(pre-tax) will be recorded in the second quarter of 2000 as a contingency
for losses from discontinued businesses. These actions are included in the
restructuring and other charges.
o Non-Core Business: First Union will continue to apply stringent financial
and strategic criteria to its business lines, and as a result, additional
non-core businesses may be exited or divested.
In approving the restructuring, the First Union board also concluded that it
intends to maintain the current dividend rate on First Union common stock. In
addition, First Union's board authorized the repurchase of up to an additional
50 million of First Union's outstanding shares of common stock.
First Union (NYSE:FTU), with $254 billion in assets and stockholders' equity of
$17 billion, is a leading provider of financial services to 15 million retail
and corporate customers throughout the East Coast and the nation. The company
operates full-service banking offices in 12 East Coast states and Washington,
D.C., and full-service brokerage offices in 43 states. Online banking products
and services can be accessed through www.firstunion.com.
This news release contains various forward-looking statements. Amounts used
herein could vary significantly as a result of market and other factors. Final
amounts related to the subject matters herein will be set forth in the
Corporation's 2000 Form 10-Q and Form 10-K filings with the SEC. A discussion of
factors that could cause First Union's actual results to differ materially from
those expressed in such forward-looking statements is included in First Union's
2000 filings with the SEC, including its Current Report on Form 8-K, dated June
26, 2000.
A recording of First Union's teleconference call will be available beginning at
1:30 p.m. eastern time today through Wednesday, July 5 midnight eastern time.
The telephone number is 1-402-998-1383. Additional information is available at
www.firstunion.com.