Once a darling of Wall Street for its technological prowess, Firstar Corp. is losing its luster.

The latest blow came Tuesday, when Thomas K. Brown of Donaldson, Lufkin & Jenrette, a champion of the Milwaukee bank, cut his rating to "market perform" from "buy."

"Three years ago they were one of a handful of leaders in the industry," said Mr. Brown. Now he views the bank as his "No. 1 takeover target."

Indeed, in a report written in February 1995, the analyst placed the bank on a short list of "companies leading the industry's transformation."

The $20 billion-asset bank had pioneered technology-driven systems that identified the bank's most profitable customers for preferential service, said Mr. Brown.

The systems seemed destined to create earnings growth and prosperity for shareholdersand serve as a model for the rest of the industry.

But Firstar has since stumbled. While its stock price remains near its 52-week high, Mr. Brown said an overpriced acquisition of First Colonial Bankshares Corp. in 1995 and a muddled reengineering effort stalled earnings momentum. Projected efficiencies did not materialize.

Firstar's competitors have caught up with the bank in terms of technology. For example, when a preferred customer of NationsBank Corp. calls the customer service line, that call made from the customer's home phone will be routed ahead of others.

"Firstar had the ability to do that before NationsBank," said Mr. Brown. "They did not execute."

Mr. Brown said there is "no quick fix" and argued that growing pressure from shareholders and board members will force the bank to sell out. "I will be surprised if this company is independent 12 months from now."

Firstar's stock closed off 93 cents, at $32.44.

Firstar spokeswoman Anne Weninger said the bank has "a strong strategy in place for growing revenue" and contended the reorganization process would eventually pay off. "We feel very strongly we're doing what needs to be done."

In a second-quarter filing, however, Firstar predicted flat earnings for the next several quarters, as well as higher-than-expected operating expenses.

John Wimsatt of Friedman, Billings, Ramsey & Co., an Arlington, Va., brokerage firm, cut Firstar to "hold" from "accumulate" on Friday. He reduced his 1997 and 1998 earnings-per-share estimates and said the stock is fairly valued at its current price.

On Aug. 1 Ben Crabtree of Dain Bosworth cut his rating on the stock to "neutral" from "buy."

Thomas Hanley of UBS Securities started coverage of the bank with a "buy" on Aug. 1-but only to add it to his famous list of takeover targets.

The analysts downgraded the bank on its performance, but they agreed the stock has "upside potential" in a takeover.

Most likely buyers include U.S. Bancorp, First Chicago NBD Corp., and Norwest Corp., said Mr. Brown. Mr. Crabtree offered BankAmerica Corp., ABN Amro, Banc One Corp., and NationsBank as alternatives.

"The best fit is with U.S. Bancorp," formerly First Bank System Inc., said Mr. Brown. "Its management team would know what to do with this franchise. They have an excellent acquisition record."

A recent rumor of a merger of equals with Comerica Inc. unnerved analysts, who are counting on the acquisition premium.

Elsewhere on Wall Street, bank stocks slightly outpaced a down market, with the Standard & Poor's bank index shedding 0.61% to 572.87, compared to a drop of 0.78% in the S&P 500. The Dow Jones industrial average dropped 77.35 points, or 0.98%, to 7,782.22.

Data on the consumer confidence index for August and housing starts in July were stronger than expected, reviving fears of an interest rate hike on the overnight lending rate by the Federal Reserve Bank.

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