First Union Corp. chief executive Edward E. Crutchfield Jr. is ready and willing to defend his bank's history of acquisitions.
They are absolutely necessary for First Union to compete against nonbanks, he asserted Wednesday at the American Banker's first annual Mergers and Acquisitions Strategies Forum.
Calling critics of his deals uninformed, Mr. Crutchfield colorfully waved aside suggestions he had sacrificed shareholder value to expand his bank.
"I don't apologize for our acquisitions," he declared. "It is a poor strategy to do no acquisitions and say we'll just sit around for four or five years and wait for someone to buy us.
"It doesn't have to be the case that mergers hurt shareholder returns. They can in fact be compatible," he said.
Mr. Crutchfield directly took on the arguments of one of his sharpest critics, banking analyst Thomas K. Brown of Donaldson, Lufkin & Jenrette Securities Corp.
"Our critics don't understand the point that you bulk up because you need the scope and size to afford the conversion cost to alternative delivery systems," he said.
Mr. Brown has forcefully contended that mergers in the banking industry this year have come at too great a cost to shareholders. The money would be better spent, he says, on developing better marketing and delivery systems and on repurchasing shares.
At a panel discussion on Tuesday, Mr. Brown lambasted First Union's $5.4 billion pending acquisition of First Fidelity Bancorp., Lawrenceville, N.J., and other banks that have paid in the neighborhood of twice book value.
Graphically comparing First Union's stock with that of Wells Fargo & Co., a bank renowned for avoiding deals, Mr. Brown noted the superior performance of Wells' shares.
The banks that are going to be acquired in four years are the ones making these unwise acquisitions now, he said.
But Mr. Crutchfield argued that large acquisitions were necessary to invest in alternative delivery systems like telephone, computer, and electronic banking.
First Union plans to spend $300 million in the next 24 months on these and other technological endeavors, he said.
Once the bank reaches this level of technological prowess, it can then effectively cross-sell products and compete against the nonbanks that have been growing at the banking industry's expense, he said.
And he defended his record of creating shareholder value, saying that, ranked by total return, First Union was the No. 1 bank among the top 25.
To be sure, even Mr. Crutchfield conceded there were drawbacks to mergers. Bureaucracy is a major problem when banks grow, he said.
Mr. Crutchfield has overseen First Union's growth from a North Carolina bank with $7 billion in assets in the mid-1980s to a $124 billion-asset East Coast giant once the First Fidelity deal is completed.
"In the 1970s Mao Tse-tung used to let loose the Red Guard in China on government buildings because he feared bureaucrats so much," he said. "Maybe I'll do the same thing."
Keeping employees responsive to customers, and innovative, is difficult when a bank reaches the size of First Union, he said. Nonetheless, Mr. Crutchfield said bigness was a necessary evil, and most banks would have to reach at least $100 billion in assets to survive.
