Michael L. Mayo of Lehman Brothers cut his investment ratings Tuesday on shares of First Bank System Inc. and NBD Bancorp, based on their strong first-quarter price performance.

"I would rather be in Barnett Banks and Banc One, which have more upside potential at this point," he said.

"Banc One is especially interesting because it trades at only 80% of its franchise value, versus 90% for the typical bank," Mr. Mayo noted.

Barnett shares were up 37.5 cents to $46.375 at Tuesday's close while Banc One Corp. was up 87.5 cents to $29.875 per share.

The analyst figures franchise value by adjusting banks' equity for important but often ignored factors like overfunded pensions and unrealized derivatives losses. Such items constitute hidden book value, revealing the true worth of a bank's franchise, he maintains.

Mr. Mayo lowered First Bank System to "hold" from "outperform" and NBD to "outperform" from "buy." First Bank shares gained 21.4% in the first quarter, while NBD rose 18.7%. On Tuesday, First Bank was unchanged at $40, while NBD was 50 cents to 32.50

After calculating franchise values based on yearend data, Mr. Mayo added New York's Chase Manhattan Corp. and Barnett, based in Jacksonville, Fla., to his list of possible takeover candidates.

Already on that list, as featured stocks for investors, are First Chicago Corp. and First Commerce Corp. in New Orleans.

Banc One, based in Columbus, Ohio, was added to the list on the basis of relative valuation, he said, along with Mellon Bank Corp., Pittsburgh.

By labeling Chase and First Chicago takeover candidates, Mr. Mayo does not necessarily mean acquisitions are imminent. He feels that virtually any bank, except the very largest, can be a target if its stock sells at a significant discount to its authentic franchise value.

In January, Mr. Mayo put Mellon on the takeover list because he said the market was not recognizing its position as the nation's second-largest money manager, behind Fidelity Investments.

Mellon remains a good value, he said Tuesday, but is no longer a takeover target because the 33% first-quarter gain in the price of its shares has narrowed the gap between its market value and franchise value. Its shares were Tuesday up 37.5 cent to $41.125.

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