Shares of Chase Manhattan Corp. rose 3.8% Tuesday in a mixed market for bank shares after Merril Lynch upgraded the stock, saying the company has hidden earnings potential.

The stock jumped nearly $2 in early trading after Judah S. Kraushaar of Merrill upgraded his short-term forecast to "buy" from "accumulate." They closed up $3.0625, at $83.75. Chase shares "suddenly seem in the midst of a powerful revaluation driven by the new disclosures regarding the extent and composition of the company's private equity and Internet divisions," Mr. Kraushaar said.

Per-share earnings at Chase were 50% higher in the fourth quarter than a year earlier, helped by the company's venture capital unit, Chase Capital Partners. Mr. Kraushaar estimated on the basis of the unit's performance that there is $9 to $18 in hidden value in each share. The unit reported venture capital gains of $1.3 billion in the fourth quarter alone.

Since the earnings release on Jan. 19, Chase's stock has performed nicely, rising 18%, versus a 2.7% rise for the Standard & Poor's index of 29 banks.

William B. Rubin, a principal at Keefe Managers Inc. in New York, said the increase in valuation is deserved because Chase is not like a normal retail bank.

"A majority of investors and traders do not realize that only a small portion of Chase's profits come from retail banking," said Mr. Rubin. "The majority of their business comes from higher-P/E-type businesses."

Chase's price-to-2000-earnings multiple of 13.5 trails that of other global financial companies. American Express Co.'s multiple is 27.3, American International Group's 32, Citigroup Inc.'s 18, Goldman Sachs Group's 18, and Morgan Stanley Dean Witter & Co.'s 16.9.

Even without the venture capital business, Chase's stock is undervalued, analysts said. Chase's global banking "is among the industry's largest and most profitable franchises," said Susan L. Roth, an analyst at Donaldson, Lufkin & Jenrette Inc.

Ms. Roth, who raised her 2000 earning-per-share estimate on Tuesday to $6.10, from $5.95, said the global banking group has come into its own. Since 1993 the bank has moved to fourth place in high-yield debt underwriting and 11th in merger and acquisitions, from "nowhere," she said. In investment-grade debt underwriting it has moved to third, from 18th. And the bank remains No. 1 in loan syndications, with a 32% market share in 1999.

"You add all these things together and it makes for a powerful story," said Adam Lewis, senior vice president and trader at Keefe, Bruyette & Woods Inc. in New York. "The stock probably should be a lot more than 13 times earnings if you believe the Chase Capital Partners story."

Analysts also portray Chase as an inexpensive Internet play. Mr. Kraushaar said potential initial public offerings within - separate from Chase Capital Partners - could generate gains of up to $1 billion in 2000.

And with a diversified private equity portfolio, Wall Street sees a buying opportunity. "It is a powerful engine there," Mr. Lewis said. "And the market is just starting to recognize it."

Still, all bets on Chase's investments come with the assumption of a healthy economy, Mr. Rubin said. That means growth in the major stock indexes of 5% to 10% this year.

"If you have a decrease of 5% or 10%, then you'll see more volatility," he said.

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