When it comes to building its international banking franchise, Chase Manhattan Corp. is heading back to the future.

A year and a half after the Chase-Chemical merger, the new Chase is using its new heft to build a global franchise steeped in traditional corporate banking activities.

Chase's overseas strategy is markedly more conservative than many of its competitors'. Unlike Citicorp and BankBoston Corp., the nation's largest banking company has no interest in being a global consumer bank. And though banks such as Bankers Trust and J.P. Morgan are heavily into investment banking abroad, Chase has only a fledgling presence in this business overseas.

"We see ourselves as a broad-based wholesale financial house," said vice chairman Donald H. Layton, head of global markets and international operations at Chase. "We're not interested in doing local-local banking," said Mr. Layton.

But in the context of wholesale banking, Chase, always a strong competitor, has gained even more clout with the merger.

The deal combined the old Chase Manhattan's strong cash management, custody, private banking, asset management, and fixed-income activities with Chemical Banking Corp.'s strong risk management and syndicated lending. It also joined the two banks' formidable foreign exchange operations and growing securities businesses.

Above all, the merger produced a much bigger bank, with $337 billion in total assets at yearend 1996 and a much broader international and domestic reach. More customers, more volume, and lower costs per transaction, Mr. Layton said, have given Chase an important edge over the competition.

"If you want to be a winner, you need critical mass ... a large client base," he said. "It's better to be No. 1, 2, or 3 in fewer businesses than 15 in a lot of businesses, because margins and profits are higher."

So far, it seems that Mr. Layton is right.

First-half results show that the improvement in earnings is continuing. Net income from global wholesale banking, including trade finance, asset management, and processing and advisory services, rose 14.5% to $1.34 billion. And return on equity rose from 23% to 27.4%.

Certain segments of this business have really shined. For example, earnings from global markets, mainly trading in foreign exchange, bonds, and commodity and derivative contracts, rose 61% to $610 million. And earnings from global services, the bank's processing and funds transfer business, rose 25% to $156 million.

Analysts find few reasons to question Chase's strategy.

"You do get some opportunities out of size on a global basis that wouldn't necessarily be available to others," said Lawrence Cohn, head of banking research at Ryan, Beck & Co.

"The world in which they are playing rewards scale, and while Chase is involved in a lot of businesses, they've done it in a very focused way."

But analysts and Mr. Layton himself caution that, if it isn't handled right, size can hurt efficiency.

"Bigger per se doesn't mean anything if you can't make the company work well together," Mr. Cohn said. "A lot of this is in the execution." Mr. Layton added.

Few bankers around know the ups and downs of international business like Mr. Layton, who began his career 22 years ago with Manufacturers Hanover Trust and subsequently rose to group executive in charge of its global banking operation.

He held similar responsibilities at Chemical Bank after it merged with Manufacturers in 1991 and was named vice chairman in charge of global markets after Chemical merged with Chase.

Mr. Layton said that the new Chase, unlike Chemical after its 1994 merger with Manufacturers Hanover Corp., did not have to spend years cleaning out Third World and commercial real estate loans and rebuilding its capital base.

The new bank, Mr. Layton said, could quickly begin to focus on boosting profits rather than cutting losses.

One area in which Chase has lagged, however, has been investment banking, which, like syndicated lending, is run by another vice chairman, James Lee.

Mr. Layton said building up in investment banking is now high on Chase's agenda. "For us to complete the spectrum, we clearly have to be in investment banking," he said.

To date, Chase has built only a limited international investment banking network through Chase Securities Inc.

The unit has mainly specialized in underwriting large Eurobond deals for Latin American and other emerging market sovereign and corporate issuers, as well as issuers of Yankee bonds (those issued in the U.S. market for foreign corporations and institutions).

From here on, Chase intends to continue expanding, although it is giving higher priority to building up its U.S. investment banking activities than expanding them overseas.

For the moment, Mr. Layton noted, Chase will continue to build investment banking internally rather than through acquisitions.

"Our highest priority is the U.S. corporate bond market," he said. "We are investing a certain amount in developing investment banking, but we will not do things in an injudicious way."

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