Whether or not an economic downturn is looming, cash management bankers are confident that their mature but profitable business will keep chugging along.

Loan demand and credit quality may go their cyclical way, but corporations' needs to process incoming remittances, manage cash positions, and move money are never discretionary.

"Payments still need to be made in good times or bad," said Lawrence Forman, cash management analyst at Ernst & Young in New York. "What happens is that the growth rate slows down."

Banks' cash management revenues were $8.7 billion in 1997, up 7.5% from 1996, according to Ernst & Young's recent survey of the industry. It is forecasting another 7% rise for 1998, to $9.4 billion.

Tough times can present growth opportunities. Mr. Forman said corporate treasurers might be more willing to buy additional services such as sweep accounts, or consider moves to reengineertheir operations, such as farming out payables and receivables processing.

"Some banks try to capitalize on the trend of outsourcing treasury functions," Mr. Forman said. "Bad times may push more people into those types of activities"-and the big service providers would get bigger, improving economies of scale.

Meanwhile, there is an untapped market at small end of the business spectrum, where big and small banks alike may see an opening.

James Graham, executive vice president of PNC Bank Corp. in Pittsburgh, and head of its treasury management business for large corporations, was recently asked to explore the cash management potential in small and midsize businesses.

"I have seen an insatiable demand out there from people who want to do things from their desktops" and can be served via the Internet and other cost-effective means, the banker said.

PNC is trying to reach more of these customers through its branch network and by posting detailed information on its Web site.

Another potential marketing method is to form affinity programs with legal and accounting firms that similarly strive to "add value to their customer relationships," Mr. Graham said.

The stock market tends to reward skilled technology banks with their stable revenue sources. Heather Bellini, an equity analyst at Lehman Brothers, includes State Street Corp., Mellon Bank Corp., and Bank of New York Co. among the computer service organizations she follows because of their transaction processing strengths.

"Computer services companies have higher multiples than banks," Ms. Bellini said. State Street, for example, has traded at a price/earnings ratio between 80% and 160% of the relative valuation of companies listed on the S&P 500 index for the last two years.

Mellon Bank Corp. over that period was between 60% and 120%.

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