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First Chicago: A Bank You Can Bank On?


Inside Wall Street

FIRST CHICAGO: A BANK YOU CAN BANK ON?

When money manager Ed Walczak buys into a bank, big investors take heed. As the chief investment officer in the U.S. of a Swiss bank, Vontobel, with assets of $17 billion, Walczak has an expert's eye. So when he recently started buying shares of First Chicago at 28, a number of money managers unhesitatingly followed suit.

Walczak hasn't been too impressed with New York money-center banks, although their shares have staged a sharp comeback this year. He suspects many still face big financial problems. But First Chicago, parent of First National Bank of Chicago, the nation's 11th-largest bank, "has the makings of becoming a big winner," says Walczak.

ASSET-RICH. Apart from having a strong balance sheet and undervalued hidden assets, First Chicago is a compelling takeover target in an industry that's still in the process of consolidation, argues Walczak. First Chicago has total assets of $50 billion. The bulk of earnings comes from its American National Bank, a "superregional" consisting of a $7 billion credit-card eperation and a branch system with more than 100 locations in greater Chicago.

Analyst Chris Kotowski of Oppenheimer, who is also a bull on First Chicago, thinks it's ripe for restructuring. It's "among the most asset-rich companies we cover, and there is little question that the sum of the pieces of the company is worth much more than the current market capitalization of about $1.9 billion," he says. The company's separable assets alone, including its credit-card operations, venture-capital portfolio, and American National Bank, are worth $2.1 billion after taxes, or $20 a share, figures Kotowski.

Walczak agrees that a restructuring is quite likely. He believes the new management, led by Chairman and CEO Richard Thomas, appears committed to a major restructuring following poor 1991 results. He also suspects that in the short term, First Chicago will opt to spin its nonperforming loans into a new company or undertake some kind of merger or acquisition.

Walczak notes that First Chicago's stock is trading at about 77% of its "understated" book value of 35 a share. He figures that First Chicago is worth 37 to 44 a share, based on projected earnings of $4 a share in 1993. Analyst Kotowski expects earnings of $2.65 a share this year, up from last year's $1.15.

Whispers are that some foreign banks, including a big Canadian bank, are eyeing First Chicago as a buyout. One big investor believes that Bank of New York, which acquired Irving Trust in 1988, is also interested in First Chicago. A Bank of New York spokesman said the company is always seeking opportunities to expand but wouldn't comment on First Chicago.GENE G. MARCIAL


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