The new Chase Manhattan Corp. is getting advance praise from most analysts, but the plaudits are not universal.
Lawrence W. Cohn of PaineWebber Inc., concerned about sluggish revenue growth and the need for higher loan-loss provisioning, has given the new Chase an "unattractive" investment rating.
The new Chase, to be created by the merger of Chase and Chemical Banking Corp., which is due to close March 31, will be the largest banking company in the nation in terms of assets and the second-largest in market capitalization, behind Citicorp.
The reported pro forma fourth-quarter earnings gain for the combined company "resulted largely from higher trading revenues and a lower FDIC insurance premium," the analyst said.
Earnings at Chase/Chemical also benefited last year from higher than average venture capital gains and significant gains in the investment portfolio, he noted.
Mr. Cohn said he thinks additional growth from those sources will be hard to find. In any case, he said, the market has typically not rewarded earnings from those lines of business.
Overall, he said, "revenue growth coming into the merger is quite slow, largely reflecting persistent margin pressures." Net interest income "has been essentially stagnant for the last five quarters." Growth in earning assets has been offset by declining net interest margins.
With loan growth now slowing, growth of earning assets will also likely slow down, he said. But with interest rates falling, margin pressure is unlikely to ease and may grow worse.
Earnings last year also were boosted by loss provisions "that were below sustainable levels," he said. Net chargeoffs in the fourth quarter were the smallest in eight quarters and can be expected to rise from this cyclical low point.
Mr. Cohn also noted that the new Chase, at current prices, sells at 71% of the price-to-earnings multiple of the Standard & Poor's 500 stock index - the so-called market multiple.
Historically, money-center banks have sold at 50% to 60% of the multiple, he noted. "Thus, we view the stock as fully priced."
A considerably more upbeat perspective is offered by George M. Salem of Gerard Klauer Mattison & Co., who has designated the new Chase Manhattan as his "favorite bank stock for 1996."
Mr. Salem sees the deal creating "a high quality powerhouse bank holding company from the best of two good companies." He said he expects the merger to go smoothly and forecast expense savings "exceeding the $1.5 billion already targeted."
Besides lower costs, he expects additional value to be created through "revenue enhancements from cross-selling of complementary products, the greater clout of a larger organization, and the potential for rating agency debt upgrades, which reduce funding costs and add customers."
As Mr. Salem sees it, the stock - now trading at a pro forma $66 per share - is a "quintessential 'value' equity," given that its price is only 48% of the S&P 400 - an index that includes only industrial stocks.
The analyst sees upside potential in the shares to $85 in the next 12 months, a 35% gain, and a move to $100 per share in two years, a gain of nearly 59% from the current level.
Bank stocks rallied in Tuesday's market. Chase was up $1.375 a share, to $68.875, and Chemical rose a like amount, to $66.75. Republic New York Corp. rose $1.625, to $59.625; Citicorp advanced 75 cents, to $75.
Upgradings of earnings estimates for Chemical recently helped place it among the stocks most positively viewed by analysts, according to First Call Corp.
But Wall Street's views on a number of thrift institutions appear to be cooling, perhaps because of the falling rate environment. Among those getting negative revisions recently were Greater New York Savings Bank, GreenPoint Financial Corp., H.F. Ahmanson & Co., and Dime Bancorp.
