BankBoston Corp. led the 50 largest U.S. banking companies in revenue growth in the second quarter, followed by First Tennessee National Corp. and Synovus Financial Corp.
Those companies topped a compilation by Keefe, Bruyette & Woods Inc., with year-over-year growth of 26%, 25%, and 24%, respectively.
Bank of America Corp. and Republic New York Corp. brought up the rear, with 1% revenue declines. Republic is being acquired by London-based HSBC Holding PLC.
Investor attention is turning to revenue growth, and stocks of faster- growing banking companies are seen as more attractive than others. With bank earnings already high by historical standards, and with no major problem on the horizon, revenue growth "is critical," said Thomas Theurkauf, an analyst at Keefe, Bruyette & Woods Inc. in New York. Revenue "makes everything else happen."
The $75.7 billion-asset BankBoston's superior performance is not likely to affect its stock price directly because it is merging with Fleet Financial Group. Fleet, with $106.9 billion of assets, also performed well, ranking ninth, with revenue growth of 15%.
The performance of another Boston-based institution, the $53.3 billion- asset State Street Corp., shows how critical revenue growth can be to a stock price. State Street's shares plunged 13% in the days after a second- quarter earnings announcement that led analysts to believe its revenue growth was slowing.
State Street has a strong reputation for growth. In a ranking prepared by Salomon Smith Barney, State Street produced higher revenue gains than any other large bank in the three years through 1998, at 22%, and in the six years 1993 through 1998, at 17.4%.
(The listing did not include Citigroup Inc., Salomon Smith Barney's parent. Citigroup topped State Street, with a three-year growth of 29.6%, according to A.G. Edwards & Sons.)
Another company showing a reversal was $75.5 billion-asset PNC Bank Corp. of Pittsburgh. It ranked 43d in the second quarter, but for the 1996- 1998 period it was No. 3.
The $18.3 billion-asset First Tennessee not only came in second in the quarterly ranking, with a gain of 25%, but also shone in the three- and six-year periods when it was among the top four in the ranking prepared by Salomon Smith Barney.
BankBoston achieved its No. 1 ranking mainly as a result of its underwriting business, particularly Internet offerings handled by its Robertson Stephens investment banking unit. It also was aided by high- margin Latin American activities, Mr. Theurkauf said.
Robertson Stephens played a role in Bank of America's negative growth: BofA sold Robertson to BankBoston. Another reason was a scaling back of proprietary trading overseas, said David Stumpf, a bank analyst at A.G. Edwards, St. Louis.
Another factor might have been a falloff in revenue after the former BankAmerica Corp.'s merger into NationsBank, Mr. Stumpf said.
Some experts say that too much emphasis is being placed on revenue growth.
"Revenue growth is fine, but the key is asset quality," said Peter Green, chief technical strategist with Gruntal & Co. "That's what should be looked at."
Kenneth Froewiss, professor of finance at New York University's Stern School of Business and a former economist for J.P. Morgan, said, "If anything, I would look at return on equity. Being big is important, and part of that equation is revenue growth, but as a way of determining the health of an institution, it is hardly an adequate measure."
"If revenue growth is extremely high, you have to look at how they're getting it," Mr. Froewiss said. "If a company's revenue is growing much faster than its peers, that could raise a red flag."
The doubters seem to be in the minority, however, at least among bankers and bank analysts.
Profit increases through expense-cutting are limited, Mr. Theurkauf said. "People pay for growth."
"Revenue growth is synonymous with market share-it's a way to become more competitive," said Mr. Green. "Banks want to capture all of a person's financial dealings, and that spurs revenue growth."
Talk of revenues has become "a key component of my briefings to our board," said Dennis S. Marlo, chief financial officer at Sovereign Bancorp of Wyomissing, Pa., which is too small to be included on the list of the 50 largest in the industry.
"I tell them how we got where we are and where we're going," Mr. Marlo said.
In both the quarterly and yearly rankings, the very biggest banking companies did not take top slots. Walter P. Fitzgerald, vice president at money manager Breen, Murray & Co, New York, said he was not surprised.
Acquisitions are a way to buy revenue growth, Mr. Fitzgerald said. "If you can't make your revenues grow, you can merge with a like-size institution and cut your overhead."
At the same time, "If revenues increase and your margins narrow, you're not getting anywhere," Mr. Fitzgerald said.
In general, he added, "The industry's revenue growth could be better. You have excess capacity in banking and people are competing for their share of the pie. As a result, revenue growth has not been as good as it might be."