Higher rates and slow growth spur downgrades by Dean Witter.

Rising interest rates and slow economic growth have prompted Dean Witter Reynolds analyst Anthony R. Davis to rethink his ratings of bank stocks.

Banks that had depended on cleaning up their balance sheets and lowering costs for earnings growth now must depend on revenue growth, Mr. Davis argues. And he is skeptical that revenue will be easy to grow.

Mr. Davis on Monday downgraded Central Fidelity Banks Inc.; Crestar Financial Corp., both of Richmond, Va.; Barnett Banks Inc., of Jacksonville, Fla.; and Integra Financial Corp., of Pittsburgh.

But he upgraded Signet Banking Corp. saying its stock is undervalued.

The downgrades represent a shift in Dean Witter's strategy towards banks, said an assistant for Mr. Davis, who was unavailable for comment yesterday. "Unless banks grow their revenues faster, they won't perform as well over the next year or so

Mr. Davis' assistant said there has been a shift away from an emphasis on cost containment and toward revenue growth at many banks.

Mr. Davis is arguing that it may prove more difficult than expected to grow revenues. He reasons that rising rates will off-set any improvement in revenue due to a stronger economy. Mr. Davis also asserts that the economy is growing more slowly than previously thought, so loan growth will be less than expected.

In addition, Mr. Davis believes Central Fidelity, Crestar, Barnett, and Integra are overvalued relative to the market.

In afternoon trading Monday, Central Fidelity was at $32.375, up 12.5 cents. Mr. Davis downgraded the stock, which was trading at 10.6 times projected 1994 earnings and 9.5 times projected 1995 earnings.

Barnett, which was downgraded from buy to accumulate, was off 50 cents to $46. It was trading at 9.9 times 1994 earnings and 8.9 times 1995 earnings, according to Mr. Davis' projections.

Integra, which Mr. Davis downgraded to "neutral" from accumulate", was trading at $47.50, down 12.5 cents. It was trading at 9.3 times projected 1994 earnings and 8.8 times projected 1995 earnings.

Crestar, downgraded to "neutral" from "accumulate", was trading at $48.25, down 25 cents late Monday. It was trading at 10.7 times projected 1994 earnings, and 9.6 times projected 1995 earnings.

Although they were downgraded, Mr. Davis' assistant said both Central Fidelity and Crestar Financial should benefit from interstate banking.

Signet Banking was upgraded to "buy", the assistant noted, because the bank's stock currently is trading at about 17% below its 52-week high.

In late trading Monday, Signet was trading at $37, up 50 cents.

Mr. Davis believes the pending spinoff of Signet's credit card operation will be a positive for the bank. "Credit cards might not be as strong as everyone predicted this year," his assistant said.

He said Signet would continue to cut its costs by closing some branches as well. Currently, he said, the bank had 240 branches.

"Some of them will not be necessary and will be closed."

In addition, Mr. Davis notes that Signet is embarking on an intensive direct marketing campaign to sell its financial products -- such CDs and home-equity loans to the public.

"They are embarking on a database-marketing program to sell these products to the public," he said. "Even if it doesn't work out, they will still be attractive."

In other market news, Merrill Lynch raised its rating of Sovereign Bancorp to

"above average" near-term, from "neutral" near-term.

The news sent Sovereign's stock up 12.5 cents by the afternoon to $10.125.

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