upgrading the debt of two of the nation's largest banks and placing a third on review for a possible upgrade. Moody's on Monday upgraded about $20 billion of Chemical Banking Corp. and Chase Manhattan Bank debt, noting the potential benefits of their pending merger. The senior long-term debt of both banks was lifted to A1 from A2. Separately, BankAmerica Corp. was placed on "positive watch," with approximately $17 billion of securities affected. "The rating agencies' attitude is big, bigger, biggest equals good, better, best," said Allerton G. Smith, a bank bond analyst at Donaldson, Lufkin & Jenrette. Moody's said its actions on Chemical and Chase underscore its confidence in the broad and diverse business franchise the new entity would have. In a slower revenue-growth environment, banks must focus on products they can provide cheaply, said Michael Foley, a senior analyst at Moody's. "This merger does that," he said, pointing to the strong position in global custody, mortgage servicing, credit cards, and deposits that the new Chase would enjoy. "They've established a broad array of leading market positions that will give them the size to be efficient providers over the long term," said Mr. Foley. Analysts expressed some surprise that the upgrades came before the banks have completed the merger, but noted that Moody's has generally been more aggressive about rating changes than Standard & Poor's Corp. "There's a high probability that the merger will be approved, and the market has reflected that," said Mr. Foley. "As a result, we feel confident in the rating changes." Moody's action on BankAmerica reflects a positive view of that bank's previous acquisitions, and underlines Moody's favorable view of larger banks. "BankAmerica has taken a number of weakened or troubled franchises and developed a longer-term strategy for making those vialble businesses," said Mr. Foley. "We're starting to see some positive results from that strategy." Analysts said that the stabilization of the California economy and the national franchise has helped BankAmerica. "They've gotten through the worst part of the economic cycle in California," said Mr. Smith. "The two agencies appear to be taking the view that the mid-A range is where ratings for big banks are going on an average basis," noted John Works, a bank bond analyst at J.P. Morgan & Co. "You need to have size to qualify." Indeed, size may be a stronger factor than anything else in the upgrade, argued Mr. Works. "I don't disagree with Moody's move," he said, "but traditionally, BankAmerica has had less capital than its competitors, and been less profitable." Moody's also recently raised its rating on First Chicago Corp. and lowered its ratings on NBD Bancorp as a result of the merger announced by those banks. Moody's raised the senior credit rating of First Chicago to A1 from A2, and lowered NBD Bancorp's subordinated debt to A2 from A1. The downgrade of NBD stemmed from the need to reconcile the two-notch rating differential between the Detroit bank and its Chicago partner.

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