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FIRST UNION CORP. 'A' SENIOR DEBENTURES AFFIRMED, OFF FITCHALERT -- FITCH FINANCIAL WIRE --

 NEW YORK, July 7 /PRNewswire/ -- First Union Corp.'s (FTU) 7-1/2 percent debentures due 2002 are affirmed at 'A' by Fitch. First Union National Bank of North Carolina's 'A+/F-1+' structured transaction ratings are also affirmed. The ratings are removed from FitchAlert, where they were placed with negative implications on Sept. 22. The credit trend is improving.
 The acquisition of Georgia Federal Savings Bank and First American Metro Corp. (FAMC) add critical mass to FTU's existing operations in Georgia and the Washington, D.C.-metropolitan area. These transactions closely follow other deals in these markets, giving FTU the opportunity to use its strong back-office technology skills to bolster its earnings through considerable cost synergies. Despite concerns about the asset risk assumed in the FAMC transaction and the increased leverage resulting from the sizable cash purchases, the company's intent to aggressively sell off the troubled portfolio should reduce nonperforming assets (NPAs) and continued strong profitability will boost retained earnings.
 FTU has mitigated the asset risk associated with the FAMC purchase by segregating for accelerated disposition all of FAMC's nonperforming and other impaired assets. FAMC's $406 million nonperforming portfolio was increased by $168 million when its loan book was conformed to FTU credit standards. Purchase accounting writedowns of $268 million reduced the book value of the FAMC segregated assets to $306 million or only 45 percent of the original value of $674 million. These writedowns should insulate FTU from substantial losses when these assets are sold. In addition, FTU's recent review of the Washington, D.C.-area real estate market for the acquisition of Dominion Bankshares gives added credibility to the values assigned to the FAMC segregated assets.
 FTU's total NPAs as of March 31, (excluding the FDIC-supported Southeast Bank's segregated portfolio) were $1.3 billion or 3.07 percent of total loans and foreclosed properties (OREO). With the addition of the FAMC segregated assets, FTU's nonperforming asset ratio will exceed $1.6 billion or 3.5 percent of related assets. Despite the increase, over $600 million of the NPAs will be comprised of OREO and the FAMC segregated asset pool, and will be accounted for at estimated market value. As a result, when measured against the nonperforming loan portfolio of $1.0 billion, FTU's $1.0 billion loan loss reserve should be sufficient, although a 100 percent coverage ratio is below the levels currently maintained by top regional banking companies.
 FTU's use of existing cash resources to purchase Georgia Federal and FAMC increased consolidated and parent company leverage. Equity as a percent of assets declined to approximately 6.5 percent from the 7.4 percent level of March 31. In addition, parent company double leverage, a virtually nonexistent 102 percent at year-end 1992, will increase to approximately 117 percent. While FTU's current proportion of NPAs to equity capital is a concern, Fitch believes that rapid disposition of the purchased credits and strong core earnings will cause leverage to quickly moderate.
 -0- 7/7/93
 /CONTACT: Scott J. O'Donnell, 212-908-0531, or Christopher M. Siedman, 212-908-0524, both of Fitch/
 (FTU)


CO: First Union Corp. ST: North Carolina IN: FIN SU: RTG

SH -- NY052 -- 9123 07/07/93 14:09 EDT
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Publication:PR Newswire
Date:Jul 7, 1993
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