IN FRIGHTING SHAPE: With the hostile Irving merger behind him, Bank of New York's J. Carter Bacot is gazing both near and far.

NEW YORK -- With one big acquistion under his belt, J. Carter Bacot sounds hungry for more.

"We'd like to do another merger," acknowledges Mr. Bacot, chairman of Bank of New York Co., which now has $39 billion in assets. "We know how to do it and do it well."

Indeed, Mr. Bacot shook up the New York banking community four years ago by acquiring Irving Bank Corp. in what was billed as the first hostile takeover in the banking industry. Since then, he has earned the respect of analysts and fellow bankers by making the merger work.

In part he has done this by elimating $200 million of annual expenses, instilling in his troops an impressive sense of austerity. Offices are spartan, frills have been cut. It's almost at the point that his people won't part with a paper clip.

Now Mr. Bacot feels that Bank of New York is in fighting shape ready to do another deal. The stock, market seems to agree, having pushed Bank of New York's stock price up 36, to about $42, since January 1.

In addition, first-quarter profits hit $80 million, compared with a loss of $63 million in last year's first period.

Mr. Bacot won't mention any potential merger targets, and claims he's not in hurry. But he says that ideally he would like to acquire an institution with a solid consumer franchise and more than $10 billion in assets.

"The best values lie right around here," he says, relaxing in his small but well-appionted office at the bank's Wall Street headquarters. "If there are opportunities in our bbackyard, we're going to look at them."

Among the most talked about possibilities: Shawmut National Corp., Hartford, Conn., with $22.8 billion in assets, UJB Financial Corp., Princeton, N.J., with $13 billion in assets, or even the smaller BayBanks Inc., Boston, with $9.5 billion in assets.

Looking Westward

Mr. Bacot isn't confining his gaze to the Northeast. He has told analysts that he is interested in looking for acquistion in the midwest. A few months ago anaylsts were speculating that one Bacot target might be First Chicago Corp., the $49 million-asset institution with a large consumer business.

They remember that Mr. Bacot wasn't stopped last time by the fact that Bnak of New York was smaller han its prey, Irving. Still, a First Chicago merger is cinsidered a long shot.

Judah S. Kraushaar, an anaylst at Merrill Lynch & Co., believes a Midwestern acquistion may be a long-term, rather than a short-term, goal for Bank of New York. Said Mr. Kraushaar: "They recognise that there are unusual opportunities closer to home."

One thing Mr. Bacot does not want is to see Bank of New York itself get ACQUIRED.

There has long been talk that his instittion might join forces with another big New York City player, such as Chase Manhattan Corp. But Mr. Bacot indicates that no such combination will occur while he's around. "We want to stay independent," he says flatly.

Mr. Bacot, 59, has a direct, take-no-prisoners approach to business. That attitud helps explain what made the Irving-Bank of New York merger work so well.

True, almost 4,000 people lost their jobs. But Mr. Bacot feels that heavy cuts were necessary to preserve the health of the institution and the jobs of its other 13,226 employees. Headcount reduction, especially at the management level, should be done quickly.

"People get entrenched, and then they're fighting with each other rather than the competition," Mr. Bacot says.

Shipshape Performance Ratios

The gruff, almost taciturn Mr. Bacot is revered among institutional investors because he runs such a tight ship. Bruce Herring, an analyst at Fidelity Investments, Bank of New York's largest stockholder, estimates that the bank's expense ratio in the first quarter was 53% while most banks are in the high 50s or 60s.

Mr. Herring computes expense ratios by taking operating expense minus foreclosure costs divided by total revenue minus securities gains.

Some of bank of New York's top executives "have offices smaller than most investor relations officers I know," says Mr. Herring. "They run a lean operation. You go to other banks and see luxurious offices. You don't see that at Bank of New York."

Employees who gain frequent-flyer miles on business travel must hand them over to the company. Office supplies such as pens and paper are kept under tight control. Ex-employees of Irving say salaries at Bank of New York lag behind those of other New York institutions by $20,000 a year.

"It's a culture," says one ex-Irving employee who left after the merger. "There's nothing wrong with it, as long as you like it and can live with it."

Clouds Lifting

Prospects are brightening noticeably for Bank of New York. Salomon Brothers Inc. expects profits to hit $293 million, for a return on equity og 9.8%. That would be a sharp improvement from last year, when the company earned $122 million, for an ROE of 3.61%.

In terms of cleaning up credit problems, analysts sat few New York banking companies are as far along as Bank of New York. The company reduced nonperforming assets by $494 million in the second half of 1991 to $1.354 billion.

In the first quarter of this year, nonperforming assets fell by 5%, to %1.29 billion. The bank added $133 million to its loan-loss reserves, which was almost flat with the amount added in the fourth quarter, but down substantially from $343 million a year ago.

Nonperforming real estate assets were $269 million at year-end, down 43% from $478 million at the close of 1990. The bank began selling off soured loans on highly leveraged transactions earlier than other New York City institutions, and at the end of the 1991, nonperforming HLTs were $175 million, compared with $347 million a year earlier.

Analysts expect Bank of New York's credit problems to continue easing this year. The outlook for its main businesses is mixed.

While loan demand will probably remain weak and credit card outstandings will probably grow only slowly, there is likely to be substantial growth in fee-based operations such as securities processing.

'If Things Break Right'

Bank of New York is one of the larger providers of custody and clearing services for stocks and bonds. Growth in the area stagnated while the bank was consolidating systems with Irving.

But with the melding now complete, the bank is aggressively trying to bring in new business. Last year it won several contracts for processing transactions for mutual funds and master trust accounts.

The processing unit contributes 15% of Bank of New York's earnings, and Mr. Bacot sees taht growing to a 20% share within three years. "If things break right, we may get more," he says in a tone of barely veiled optimism.

Another growth are: Bank of New York's credit card business, which today accounts for 20% of earnings. The unit has $4.2 billion in outstandings, and that should grow as a result of a heavily promoted campaign to lure customers with an 11.9% annual interest rate.

Bank of New York also has an exclusive arrangement with the AFL-CIO to market credit cards to its affiliated unions. In the credit card business, blue-collar customers are highly prized because they are more likely to carry bigger balances and less likely to default than the yuppie crowd.

Signs of Strength

Bank of New York has added 190,000 credit card acounts since the beginning of the year, a 6% increase. Meanwhile, credit card chareoffs at the end of last year were approximately 4.3% of outstanding, well below the industry average of 5%.

This new business - in cards and processing - means that Bank of New York will probably hire about 200 staff this year. That's a sign of strength at a time when so many other banks are slashing personnel.

And in this environment, good people are readily available. Bank of New York recently was able to hire a group of top securities-processing executives from a unit of Security Pacific Corp.

Despite Mr. Bacot's success, some investers are worried about his yen to expand. They fret taht a big merger will delute the value of their stake in the company. Mr. Herring at Fidelity, for instance, would like to see Bank of New York stock reach $50 a share before the bank attempts an big acquisition. He believes the bank will hit the target by the end of the year.

Another dilution concern: A big acquisition might require an equity infusion. Bank of New York attempted an offering in the fourth quarter just as Congress was in a tizzy about limiting interest rates on credit cards. Against a bearish backdrop in the stock market, the equity propostion was withdrawn.

For the time being, Mr. Bacot seems content to bide his time and boost his stock price. But make no mistake, when the right deal presents itself, he'll be ready to pounce.

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