As bank stocks tarry at their 52-week highs, some investors say that a good value is hard to find.

But not by all measures.

According to Smith Barney analysts, excess returns for the banking industry, which have grown rapidly since 1992, are at their highest levels since before 1965.

The analysts applied an economic-value-added model, traditionally used in analysis of industrial companies, to measure how well the 39 money- center, superregional, and community banks on their coverage lists are improving operating performance and increasing shareholder value.

Citicorp, Chase Manhattan Corp., NationsBank Corp., First Union Corp., Norwest Corp., and Wells Fargo & Co. were among the best at creating shareholder value, Smith Barney determined. National Commerce Bancorp, Union Planters Corp., and Hibernia were at the bottom of the scale.

Smith Barney's application of the industrial yardstick reflects a metamorphosis in banking. Among the changes are more efficient use of capital, and risk management practices that have allowed the industry to create more return on invested capital than ever before.

"The successful banks are well-positioned in their businesses to have significant market share, where they can earn a decent margin," said Henry "Chip" Dickson, co-author of the report. "They have to have the ability to manage invested capital, to be strong enough in their own market, and to offer other business opportunities, redefining their other distribution channels."

The study noted an annual operating growth rate of 5% through 2001 - about half the rate that revenue has grown over the last 10 years, and earnings-per-share growth at 11% through 2001.

In the past, banks have used too much leverage relative to the risk they were taking, Mr. Dickson said. What's more, he said, they lacked sufficient equity and reserves - so mistakes were harder to absorb and took longer to correct.

Banks faced tough regulation, high inflation, and high interest rates, which forced them to find alternative and sometimes risky channels of growth. Now interest rates have stabilized and the regulators have backed off a bit.

"The companies understand the business that they're in and have opportunities to better manage their balance sheet," Mr. Dickson said.

This includes having the best people to handle the work, especially in a consolidating environment, and good management information systems.

The bank balance sheet is going to become less important, Mr. Dickson said. "Nothing uses up capital the way that lending does."

So what will banks do with all of the excess capital?

Part of the freed-up capital will go into share repurchase programs, which the analysts estimate should reach $16 billion to $20 billion in 1997, or 4% of total market capitalization.

Banks already have very large market capitalizations relative to other financial services companies. In fact, nine bank holding companies fall in the top 100 of the S&P 500 bank index.

The bank group currently trades at a 29% discount to the S&P 500 and a 50% discount on a relative price-to-book basis, and the industry's dividend growth will exceed that of the S&P 500.

The buybacks will represent a return of that excess capital to shareholders, raising the level of internal capital generation much higher than required for internal growth and acquisitions.

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