Crutchfield Exits As First Union Ceo The Architect Of The Corestates Merger Remains As Chairman. The Financial Giant's President Is Promoted.

Posted: March 11, 2000

Edward E. Crutchfield, architect of First Union Corp.'s bold and costly strategy of growth by merger, resigned as chief executive yesterday to fight what he called "a highly curable" form of cancer.

"I'm gonna whip all this stuff," Crutchfield, 58, told investors during a conference call. "I'm feeling good. I don't have any vital organs affected." He would not offer any other information about the cancer.

G. Kennedy Thompson, a career First Union executive who became president of the nation's sixth-largest bank when John Georgius quit last year, will replace Crutchfield in the CEO's office. Crutchfield will remain chairman of the bank he built with more than 80 mergers since the 1970s.

Thompson, 49, promised to continue recent efforts to repair First Union's customer service, which he admitted had suffered when the bank "cut too deep" following its 1998 takeover of CoreStates Financial Corp., Philadelphia's largest bank. Despite that reversal, Thompson said Crutchfield had prepared the bank "to forge ahead seamlessly, even when there's a change in leadership."

First Union's stock rallied on news of Crutchfield's departure. It rose $3 a share in heavy trading to close at $33, a 10 percent increase on a day when most other major bank stocks fell.

"The read on Thompson is that he listens, which Crutchfield often didn't," said Richard Ravenscroft, a former CoreStates vice chairman who has criticized Crutchfield's tactics. "His experience is not broad in the banking areas. But he seems to have done a very good job of putting the investment part of First Union together."

The bank had lost half of its stock market value, or $30 billion, since it paid $20 billion for CoreStates in April 1998.

To justify the record-breaking deal, Crutchfield had projected that he would be able to boost revenues and profits by 20 percent, while cutting expenses in half, by this year. But while eliminating 9,000 of CoreStates' 18,000 U.S. jobs and closing or selling half of the local bank's 500-plus branches, First Union failed to deliver the expected new revenues and profits.

Some investors have filed lawsuits accusing Crutchfield of putting his personal interests ahead of the shareholders'. Crutchfield was paid $15 million in cash and stock options in 1998; a year earlier, his board gave him a $13 million bonus for his role in building the bank.

Last fall, the nation's largest pension fund, the California Public Employees Retirement System, known as CalPers, demanded Crutchfield give up either the chairman's or chief executive officer's post. CalPers dropped that demand this month when Crutchfield agreed to quit the bank's nominating committee.

Crutchfield's credibility also suffered when he was unable to make good on a series of bold promises after the CoreStates deal, analysts and industry colleagues said.

Upon acquiring CoreStates, Crutchfield announced that the bank's Northeastern headquarters and thousands of jobs would be relocated to Philadelphia - on the very day that bank employees were quietly being told that most of the region would continue to be run from the Newark, N.J., suburb of Summit. After protests by Mayor Edward G. Rendell and other local officials, First Union moved the headquarters designation, but not the jobs, to Center City.

"It may be crow-eating time," he said when the contradictions of his pronouncements were pointed out.

Crutchfield also was forced to write off the $3 billion 1998 acquisition of the Money Store, which had been the centerpiece of the bank's small-business lending strategy.

Since last fall, the Pennsylvania Attorney General's Office has been investigating complaints by community groups that First Union has failed to provide the low-cost accounts it promised to offer to retired and poor Philadelphians as a condition of the CoreStates takeover.

And, as shortfalls from CoreStates and the Money Store mounted last summer, Crutchfield announced a series of what he said would be industry-leading Internet and database initiatives that have so far failed to materialize.

One of Crutchfield's most vocal critics over the years, New York money manager Tom Brown of Second Curve Capital, said the former CEO developed a dangerous overconfidence after he was named the bank's president in 1973 at age 32.

"I think we had a boy wonder who was running the bank at a very young age and got overtaken with the view of the world that you had to eat or be eaten," Brown said. "Unfortunately, those who believed that ended up, in general, hurting their shareholders because they overpaid to buy the dinner."

Other CEOs whose banks suffered merger indigestion, including Bank One Corp.'s John B. McCoy, have been forced out by shareholder and boardroom rebellions. But Crutchfield continues to enjoy support from his board of directors.

"Crutchfield is a visionary," said director Joseph Neubauer, chairman of Philadelphia's Aramark Corp. "He clearly had vision about what interstate banking is going to look like, and drove the organization toward that goal." In buying banks and in boosting First Union's investment and technology powers, "Ed had complete support of the board, and he has it now," Neubauer said.

He dismissed critics of Crutchfield's acquisition strategy: "The world is full of risks. Being a CEO, you're in the risk business.

Now it's Thompson's responsibility to salvage First Union's fortunes. "Ken is bright, thoughtful and a strong leader, and he enjoys the confidence of people inside and outside the bank," said Charles Coltman, a former First Union vice chairman who quit the bank and recruited two dozen former CoreStates officers to National City Bank after First Union announced a new round of cost-cutting last year.

Brown and other observers questioned whether Kennedy would be independent enough to perform the sweeping changes, including the possible sale of some businesses, that banks such as Mellon and PNC have used to restore growth and profitability after difficult mergers.

Others said it is too soon to write Crutchfield's professional obituary.

"Ed Crutchfield was one of the pioneers of putting together the modern financial corporation. First Union made a valiant effort, and made many missteps along the way," Gerald Cassidy, bank analyst at Tucker Anthony Clery Gull, summed up. "Time will tell if his model was successful."


Native of: Rocky Mount, N.C.

Title: President, First Union Corp.

Joined company: 1976.

Education: B.A. from the University of North Carolina, Chapel Hill; M.B.A from Wake Forest University.

Family: Wife, Kathylee, a Charlotte native; three children.

Key roles: Former head of human resources; president

of Georgia banking operations and then of First Union's Florida bank; named managing director of capital markets in November 1996.

Interesting fact: A son of a schoolteacher and a textile manager.

Quote: Asked last year to contrast his management style with that of Ed Crutchfield, he said, "I'm better at consensus management than I am at just ordering people around. I can do that if I have to, but I'd rather do it the other way."


Born: Detroit.

Title: Chairman and chief executive officer of First Union Corp., since 1984.

Joined company: 1965.

Education: B.A. in economics from Davidson College; M.B.A. from the Wharton School

of Finance, University

of Pennsylvania.

Family: He remarried in 1996, to First Union's former head of corporate communications. He has two children from a previous marriage.

Interesting fact: The son of an FBI agent and schoolteacher, Crutchfield has earned the nickname "Fast Eddie" for the speed with which he enlarged First Union. But people in the bank opt for "Big Ed" instead. He once bragged about "stacking billion-dollar bills on the table" until a bank he wanted to buy gave in.

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