Stocks: After Upgrade, Mellon Gains Amid Rally by Banks

Shares of Mellon Bank Corp. gained slightly Thursday, helped by a market rally and an upgrade by Keefe, Bruyette & Woods.

Keefe analyst Joseph Duwan upgraded the Pittsburgh-based company's stock to "buy" from "attractive," and raised his 12-month target price to $84 from $75. He reiterated his earnings-per-share estimates of $5.15 for this year, $5.75 in 1997, and added an estimate of $6.45 for 1998.

Managing money for wealthy families and institutional investors has long been a cornerstone of Mellon's business, and Mr. Duwan said the bank will be expanding to "upper affluent" families in the coming months. The bank bought mutual fund giant Dreyfus Corp. two years ago and will begin offering a customized account to help aging baby boomers plan their estates.

Mellon shares rose 75 cents to $65.

As the population ages, several banks are joining Mellon in stepping up efforts to manage wealthy individuals' money.

"It's a small group, but one of the fastest-growing segments of the population is rich people," said Raphael Soifer, bank analyst at Brown Brothers Harriman & Co.

In recent weeks, BankAmerica Corp., Lehman Brothers, and State Street Boston Corp. have all announced they intend to expand the business they do with private bank customers and well-to-do retirees.

One of the strongest performers of late in this business has been Northern Trust Corp., which was included on Goldman, Sachs & Co.'s "recommended" list last month. Northern Trust was recently named "preferred provider" for First Chicago NBD Corp.'s institutional investors as that bank leaves the business. Personal trust revenues at Northern grew 12% in the third quarter, translating into $17.6 million in new personal trust business.

Smaller money managers have also done well of late. Shares of U.S. Trust Corp., a $2.5 billion-asset company that handles accounts for individual families worth $2 million to $50 million, rose 37.5 cents to $66.25 Thursday after Brown Brothers' Mr. Soifer reiterated his "short-term buy" rating. He raised his 1997 earnings per share estimate to $4.35 from $4.20 and his long-term annual growth forecast to 16% from 12%.

U.S. Trust's decision last year to sell its processing operation to Chase Manhattan Corp. has worked out well, Mr. Soifer said, because the bank is now able to focus purely on asset management for the elite clientele it serves.

Bank stocks bounced back after a selloff earlier in the week. The government announced a 0.3% increase in the consumer price index, in line with market expectations.

That helped the Dow Jones industrial average to cross the 6,300 barrier and bank stocks to resume an upward path.

Large banks did especially well, the Standard & Poor's bank index closing up 1.72% Small-bank stocks didn't fare so well: the Nasdaq bank index rose only 0.2%.

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