Before long, artificial intelligence may have an important impact on real profits.
In a survey of regional banks' technological capability, Anthony R. Davis, a Dean Witter Reynolds bank analyst, said banks that best employ technology will ultimately command higher valuations relative to the rest of the industry.
"The key to exploiting competitive advantages is technology," Mr. Davis said in his second annual survey.
"Those regional banks best employing technology will excel in growing customers, deepening customer relationships, expanding market share, and increasing earnings over time," he said in his report.
Indeed, Mr. Davis' report ranked banks on employment of technology according to four different categories - information data bases, customer information files, profitability measurement, and alternative delivery.
The top five: NationsBank Corp., First Union Corp., Zions Bancorp., Norwest Corp., and First Commerce Corp. Mr. Davis has "buy" recommendations on all but NationsBank, which carries an "accumulate" rating because of stock price gains.
"All the managements of the five banks at the top have supported the (technology) investment process and have emphasized the importance of using these investments in the daily running of the bank and making sure employees understand how to use them," Mr. Davis said.
The market could start to differentiate these banks in the next economic downturn, Mr. Davis said.
"If we have a slowdown in the economy in 1997 or 1998, and the business gets more competitive, the companies with the technological advantage will distinguish themselves quicker than perhaps they otherwise would," Mr. Davis said.
The lowest-ranked five banks are: Crestar Financial Corp., Hibernia Corp., Compass Bancshares, SouthTrust Corp., and CoreStates Financial Corp.
"In terms of their own internal systems, the bottom five has not put as much of an emphasis on it," he said. Mr. Davis said the reasons for that vary by bank. CoreStates has good technology, he said, but "the money the bank has spent has been for external services," without focusing at all on such things as customer segmentation.
To be sure, some analysts said that the market is starting to show some blind faith in technology.
"This is a common mistake that investors and management are making: they think that if they throw technology at the problem, they'll solve the problem," said Thomas K. Brown, a bank analyst at Donaldson, Lufkin & Jenrette Securities Corp.
Mr. Brown said that the gap between technological capability and the execution thereof is widening.
"Some investors think that technology will translate into success," and pick bank stocks because of that, Mr. Brown said. "If that were the strategy, that would lead to disappointing results."
Indeed, Mr. Davis concedes that technology spending is only one factor in his ratings and valuations. The Dean Witter analyst maintains a "buy" recommendation on CoreStates, and an "accumulate" on SouthTrust, both of which were in his technology bottom five.
More important than technology spending, Mr. Davis said, are such considerations as profitability, asset quality, balance sheet liquidity, and resource utilization. But he said technology may join that list of fundamental elements before too long.
"Techology will be an increasingly important part of the way investors view and evaluate these companies," Mr. Davis. "The correlations between technology efficiency and valuations will move closer."
