Banks win kudos for `take charge' moves

``We like the big money-center banks and we like the regional banks,'' says Thomas Brown, a banking analyst with Smith Barney, Harris Upham Inc. in New York. And, he says, ``we particularly like the Western regional banks.'' Coming in a week when the banking industry was thrust anew into the public spotlight, Mr. Brown's enthusiasm is understandable. Last week, several reports noted the efforts of large money-center banks in the United States to eliminate troubled third-world loans from their portfolios, while at the same time they were boosting their own bank capital, that is, their equity, as well as reserves.

Also last week, a major financial institution, Mellon Bank Corporation of Pittsburgh, announced it would transfer about $1 billion of its $1.6 billion in bad loans to a newly created unit, Grant Street National Bank. The new ``bank,'' backed in part by junk bonds issued by Drexel Burnham Lambert Inc., will be opened solely to dispose of Mellon's bad loans. The unit will not be a regular commercial bank aimed at wooing consumer deposits.

For some analysts, the new ``take charge'' emphasis within the US banking industry comes not a moment too soon. Last year the industry tallied a less than auspicious record, although many regional banks - especially large ``super-regional'' banks - did well. But the nation's 200 largest banks registered $2.1 billion in combined losses. Nor was 1986 good, either, with the top 200 banks earning slightly under $13 billion after taxes.

Are conditions looking up for the biggest US banks? The industry certainly hopes so, and some analysts believe that may be the case. Regional banks continue to shine, especially for bank analysts looking for sound banking-related investments.

``Bank earnings this year should stay in an upward trend,'' says Charles Vincent, an analyst with PNC Financial Corporation in Philadelphia. That earnings gain, he says, will take place regardless of a slowdown in loan growth.

The earnings growth for this year and 1989, Mr. Vincent concludes, ``may come more from profitability improvement than from earning asset growth.''

Still, he says, two major challenges continue to pummel the banking industry:

``Non-performing loans, although some are current loans, remain a real cloud over the industry. The real question is whether they will ever be paid.

``The other major challenge for the industry, especially the large money-center banks, is the move towards more stringent capital requirements'' imposed by the Federal Reserve Board and other central banks around the world to put banks on an equal financial footing.

Vincent says some banks may have to cut dividend payouts to boost capital - despite the negative effect such a move could have on stock values.

Among money-center banks, Vincent likes J.P. Morgan. ``Morgan is well capitalized and has a unique ability to service the commercial market,'' he says.

Among regional banks, Vincent likes Bank of New England, Barnett Bank in Florida, SunTrust in Georgia, and Security Pacific and Wells Fargo in California.

Despite its status as a money-center bank, Mr. Brown of Smith Barney likes Bank of America in San Francisco, because it is also an increasingly strong Western regional. Western regionals, he notes, have been characterized by ``good earnings momentum.''

Another Western regional on Brown's list is Valley National Bank in Glendale, Calif. It has a new management team and it commands a 40 percent market share in its area.

Other Western regionals Brown mentions are First Interstate, Security Pacific, and Wells Fargo. Among Northeastern regionals, he likes State Street in Boston, FleetNorstar in Providence, R.I., and Bank of Boston.

Although some analysts, including Brown, shy away from many Eastern and Southeastern regionals for the moment, given slower growth in those areas, Dennis Shea of Morgan Stanley does list First Fidelity, based in New Jersey and Pennsylvania. First Fidelity should be able to maintain its earnings momentum, Mr. Shea says, because of ``consolidations being made'' among the banking entities that merged to create First Fidelity.

Michael Granger, of Prescott, Ball & Turben Inc. in Cleveland, sees benefits in Midwestern banks. He likes AmeriTrust and Trustcorp, both in Ohio, and Comerica, First of America, Manufacturers National, and Michigan National, all in Michigan.

``Almost any economic indicator you can look at in terms of the Midwest is up,'' he says. ``We're seeing a recovery in that region that began in the middle of 1987. These types of economic trends don't suddenly end.''

One matter the banking community is especially concerned about (not to mention the public at large) is the course of interest rates in the US in the next few months. Last week, Federal Reserve Board chairman Alan Greenspan indicated that the rates probably wouldn't jump sharply, despite recent increases in inflation. All the same, inflation and interest rate concerns kept a damper on the market for most of the week. But a 46.40-point surge Friday helped push the Dow Jones industrial average up 67.74 points for the week to 2,178.73.