With loan demand spotty, analysts are trying to ferret out niches of growth from which banks can benefit.

According to UBS Securities, automobile lending is one of the few areas where banks are gaining market share from competitors. Bank stock investors should focus on the companies most prominent in this field, UBS said.

Among the most active major banks is Ohio's Huntington Bancshares, where 30% of loans are related to cars. Banc One Corp., Wachovia Corp., and First Interstate Bancorp. all have at least 11% of their loan portfolios in car loans.

Gaining Market Share

"Banks improved their auto loan market share from 42% to 44% during the first six months of this year," said Michael L. Mayo, a UBS banking analyst. "It's a place where they can grow revenues even if loan demand stays slow in other areas."

Given this, Mr. Mayo said stock of Columbus-based Huntington is "deeply undervalued" at 8.7 times its expected 1994 earnings of $2.70 per share. On Monday the stock was down $1 to $22.50 in afternoon trading.

The analyst reiterated his "buy" rating on the stock and said his 1995 earnings estimate is $3.15 per share. That is "based largely on expectations that Huntington will show double-digit loan growth, helped by auto lending."

Downward Slide Interrupted

Recent gains by banks in the auto-loan sector, based on Federal Reserve data as of June 30, interrupt a long downward slide.

Banks had 60% of the market in 1970, but have steadily lost ground since to finance companies, especially to subsidized units of the big three automobile makers.

The uptick this year is the result of both the low interest rate environment and healthy demand for new cars, said Jean-Claude Gruet, auto industry analyst at UBS.

With rates already low, the automakers have little incentive to subsidize even lower rates at their finance subsidiaries, he said. That is doubly true when vehicle sales are strong.

Mr. Gruet expects auto sales to increase 7% this year versus 4% last year and to grow 15% to 20% over the next three years.

More Able to Buy Cars

The home mortgage refinance boom set off by falling rates been a factor in higher sales, he said. With lower monthly mortgage payments, homeowners have been more willing to buy cars.

Retail auto loans at banks increased 15% for the first six months of 1993 to $116 billion, versus a 4% decline for finance companies to $56 billion.

The finance companies have a 21% share of the retail auto loan market, while credit unions have 22%.

Mr. Mayo said he focused on Huntington because auto lending has been a core business of the bank for 30 Years. Huntington most often purchases notes from car dealerships, known as indirect loans.

He said the Ohio bank has "uniquely strong origination capacity" with acceptance offices in Pittsburgh, Louisville, Greensboro, N.C., and Troy, Mich., for the express purpose of providing auto financing.

Moreover, as an experienced auto lender, the bank has a low loss rate. From 1976 to 1992, losses averaged only 0.44% of auto loans. Loans made in connection with auto leases had a smaller 0.30% loss rate from March 1983 to September 1993.

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