A. Hamilton's bank, 200 years later

While cleaning out valuts recently, an employee at the Bank of New York came across a canceled check signed by Alexander Hamilton. Today, the signature on the check is probably the only thing Mr. Hamilton would recognize about the bank he founded nearly 200 years ago.

The nation's first commercial bank, it now stands as the nation's 18 th-largest commercial one and conducts business in nearly every corner of the world.

It is in the process of expanding its retail reach through the acquisition of Empire National Bank, with assets of $500 million, and is one of the largest transfer agents in the country. In fact, the bank has captured 30 to 35 percent of the transfer agents process much of the paper work involved with buying or selling stocks, bonds, or mutual funds.

Even though the bank has expanded its scope of operations, it has retained one characteristic Hamilton would be proud of: It remains very conservatively run.

This conservatism has resulted in an earnings performance that Richard Leech, a bank analyst and vice-president at Keefe, Bruyette & Woods Inc., calls "less than stellar." However, the bank, while not growing as fast as other institutions, has also avoided many of their problems. It did not have the huge write-offs in the real estate market, for example, that other banks had during the last recession.

Still, Mr. Leech notes that in the period from 1975 to 1979 the bank's earnings grew at a 6.3 percent annual rate, compared with growth of 12.4 percent in the Keefe Bank Stock Index. In terms of its return on equity, the bank has also lagged, with a 13 percent return last year, compared with 18 percent for some of the more aggressive banks in the Southwest and on the West Coast. and Mr. Leech notes that the bank's return on assets has decreased from 82 cents on the dollar in 1975 to a current 57 cents. To much of Wall Street, Mr. Leech says, the result is a picture of a bank "that is not going to knock your socks off."

This picture is one that Elliott Averett, the bank's chairman, would like to see retouched, although the bank does not object to the image of a conservately run institution. At a recent luncheon interview, he pointed to the bank's first-quarter income, which was up 19.9 percent, compared with earnings gains of more modest proportions at such banks as Chemical, Manufacturers Hanover Trust, and J. P. Morgan. At the same time, the Bank of New York's return on equity and return on assets improved.

Bank officials point out that there is a good reason its 1975-79 performance didn't compare very well: The bank was in the process of merging its subsidiaries into one bank so as to move from a large regional institution into a money-center one. The officials say that since 1976 the bank has seen its performance improve and is as as competitive as any other money-center bank.

Still, Mr. Averett concedes that it has not met his earnings goals."We have done well but would like to do better," he says.

Part of the reason for the slow earnings growth over the last four years, says Mr. Leech, has been "growing pains" as a result of the bank's trying to change from a "stodgy bluechip bank to a more competitive institution." This has meant the purchase of other banks around the state, increasing the bank's branches to 150. With the Empire National purchase, there will be nearly 200 branches.

In fact, Mr. Averett says one of his biggest regrets is that the bank did not move more aggressively in expanding into the retail business. However, he adds, "we can excuse that, in a way, because we didn't have a staff with the education and background so that we could. . . do it and still be in proper shape. It took a while to be sure we would succeed." At the same time, he says, one of his successes as chairman has been the steady increase in the annual dividend, which has risen from $2.20 a share in 1976 to a current annual rate of $2.72.

The Empire National merger will not only add 40 branches to the bank's system , but will also result in some current branches overlapping with the newly acquired Empire branches. This doesn't bother Mr. Averett, who notes that this will introduce some internal competition into the branch system. The purchase of Empire will also increase the bank's earnings, since the purchase is for cash.

One of the real success stories of the Bank of New York has been its growth in the transfer-agent business. Its only real competition comes from State Street Bank & Trust, in Boston, which has a similar 30 to 35 percent share of the market. Mr. Averett notes that one of the nice things about this business is that not only is it profitable, it also provides "wonderful cash flow."