Bank One

(ONE) - Get Report

and

First Union

(FTU)

have been telling the same story this year as they trudge through massive restructurings. But the action in their stock prices looks more like an old

Journey

song.

Though the companies have been similarly aggressive in cutting costs, purging substandard loans and quitting unprofitable businesses, investors have been much quicker to reward Bank One than First Union. Since the companies named new CEOs in March, Bank One stock has jumped 45%, while First Union's shares have lagged behind, falling 9.5%. The

Philadelphia Stock Exchange/KBW Banks Index

is up 32% over that period.

Now Bank One's lofty stock price is making analysts, and even the company itself, a little nervous about whether investors are expecting too much, too soon. Bank One may have impressed investors by implementing swift and far-reaching changes and tapping as CEO a well-respected outside executive. But ultimately, both banks have a lot of work to do before investors consider them healthy, which means the stakes are higher at Bank One than at more cautious, and more cautiously priced, First Union.

Leverage

"The market has made a very large bet on this company," Lawrence Cohn, banks analyst at

Ryan Beck

, says of Bank One. "There is no room in the stock price for disappointment." (He rates both stocks hold and his firm hasn't underwritten for either company.)

Big Difference
Bank One outperforming First Union

Both banks were praised for installing new CEOs last March. Indeed, much of the current disparity in their stock prices can be chalked up to the hype surrounding Bank One's hiring of longtime

Citigroup

(C) - Get Report

executive and Sandy Weill protege Jamie Dimon, whom many investors are hoping will provide the solution to Bank One's woes. The stock had endured a painful 50% drop since August 1999 when trouble first surfaced, but started a steady climb after the

appointment was announced.

"Right now

Bank One is trading at a premium to the super-regional group," says Jennifer Thompson, banks analyst at

Putnam Lovell

, pointing out Bank One's 16.5 price-to-earnings ratio, against 10 for First Union and 13.1 for the bank index. "The pricing has gotten ahead of itself and investors are maybe hoping the turnaround is going to come sooner" than is reasonable, she says. (She currently rates the stock a hold and calls it "overbought" on a short-term basis. Her firm hasn't underwritten for Bank One.)

Dutiful

Judging from their latest earnings reports, both First Union and Bank One are dutifully swallowing their medicine, taking hits in their bottom lines as reorganization efforts continue. That meant a 13% slide in First Union's third-quarter profits, while Bank One braved a 37.2% earnings fall.

"You have two big companies that screwed up and are now trying to get themselves back on track," says Cohn, adding that First Union stock has underperformed Bank One because "the market is a little less confident" about its turnaround efforts.

Cohn also points out some of the key differences investors are homing in on, such as Bank One's choice of an outsider for its CEO job. By contrast, Kennneth Thompson, who was named First Union CEO in March, was a protege of longtime CEO Edward Crutchfield, under whose watch many of the current problems cropped up. First Union slipped 19 cents Tuesday to $29.62.

"First Union is taking a longer time to clean up its act," says Cohn. "Jamie Dimon comes in and cuts the dividend, blows out the earnings and tries to get the company cleaned up in one year. Bank One is at least getting the worst of its problems behind it." Meanwhile, Cohn continues, "Ken Thompson comes in and still has the old management looking over his shoulder. He holds the dividend, which leaves him holding very little capital." (Cohn rates both stocks a hold and his firm hasn't underwritten for either.)

The Muddle

Still, neither company is exactly getting stellar analyst reviews as they muddle through complicated quarterly results. Putnam's Thompson thinks it will be "a year or more before meaningful signs of a turnaround emerge" at Bank One. "Given the numerous challenges it faces, I continue to think a turnaround is possible but it's a longer-term process," says Thompson. The question now is how long investors will stick around and continue bidding up the stock, especially with so little upside remaining.

The latest quarter was a bumpy one at Bank One, with analysts seeing continued weakness in its First USA credit card division and a troubling spike in the overall level of nonperforming assets, which are loans that are past due but have not been written off yet.

"Overall, the results were mixed and somewhat messy," says Thompson. "There was some progress on the efficiency initiative, but asset quality deteriorated meaningfully." As for the First USA division, which saw a 38.5% drop in profits from a year ago, Thompson says, "They need to get that revenue engine going, if they really want to turn it around."

First Union, for its part, showed some improvements, if small ones, in some business divisions. The bank says customer service has improved and points to stabilizing core deposit growth after runoffs in previous quarters. It also touted a 49% jump in revenue from capital management, which includes asset and wealth management activities. Still, like many other banks, it was forced to boost the level of money it shelled out to cover loan losses. The provision for loan losses hopped to $202 million from $175 million the prior year.

"First Union is a work in progress; you kind of have to hunt and peck a little more so

on their results than on Bank One, which was a little more clear cut," says Andy Collins, banks analyst at

ING Barings

. (He rates the stock a hold and his firm has not done any underwriting for them.) First Union is also getting good grades for what many analysts see as improved disclosure and discussion of its numbers under the new CEO.

Early Stages

For both banks, the consensus is that there is a long road ahead as the effects of the restructurings continue to filter through. "They're still in the early stages but showed some progress," says Ron Mandle, banks analyst at

Sanford C. Bernstein

. "Both improved the balance sheet." (He rates both stocks a buy and hasn't done any underwriting for either.)

Still, Bank One, which in recent months has chastised analysts for setting the bar too high, may find itself increasingly pressured to deliver results faster than it's prepared to. If the improvements don't come as soon as investors would like, takeover talk will undoubtedly rear its head again. "That is something that just never goes away," says Thompson. "I'm not sure that it would become more likely, but the talk would become louder."