Hidden assets help determine banks' real value.

Lehman Brothers has found that barely one-third of top regional banks conservatively estimate pension and health care costs, which analysts believe gives investigators hidden value.

Lehman Brothers' Michael L. Mayo said While his study of 52 regionals focuses on a single financial issue, it reveals which banks are using current record profits to deal with projected long-term costs, such as retirement and health benefits.

"It is only one factor to consider when you are looking at how conservative management is," said Mr. Mayo. "I think this is one of several hidden assets that investors can look at to determine the value of a franchise."

His survey ranks Minneapolis-based Norwest Corp. first and Shawmut National Corp., of Hartford and Boston, last in how top banks manage pension and health care costs.

Sixteen of the 52 saw positive or no impact on their equity from the two variables, according to the analysis. The average bank would have a 2% decline in equity, Lehman Brothers found.

Mr. Mayo estimates that top-ranked Norwest's management could add $108 million, or 37-cents a share, to equity based on a mark-to-market analysis. That would also result in a 3.4% rise in Norwest's book value at yearend 1994.

By comparison, he found that New England-based Shawmut National Corp.'s projections would result in a decline of $166 million in equity, or about $1.74 per share. He said the company's book value would decline by 10.2%.

"It gives you a measure of management's approach," he said.

Norwest president and CEO Richard M. Kovacevich agrees.

"Our stated, No. I position is to have a conservative financial position in everything that we do," he said on Thursday.

The company approaches pension and benefits liabilities no differently than how it values mortgage servicing rights. For example, in December, 1992, the company took a $72 million charge to cover post-retirement benefits when a new accounting rule -- FAS 106 -- gave publicly held companies the option of amortizing such costs.

In an interview, Mr.Kovacevich made clear that banks should deal with such issues when earnings are at record levels,; but admits few do.

"I believe the industry is taking the short-sighted view that more earnings today are going to be valued more than a conservative approach," he said. "Eventually, the market will differentiate between banks over time."

While not everyone has the same approach, others say banks increasingly are doing a better job of managing labor-related costs.

"It's obvious to my clients that pumping as much cash as possible into these [pension] plans is good both short-term and long-term," said Bob Thompson, a principal in the Atlanta office of Towers Perrin, the benefits consultancy.

The Lehman Brothers study is believed to be unique, though Mr. Mayo says it is the first in a series examining hidden assets or liabilities at the nation's largest banks.

In assessing the bottomline implications of pension and health care plans, Mr. Mayo focused on diverse issues such as the rate at which wages are expected to grow, the expected return on pension assets and other factors he said can be compared between banks.

For instance, he found that Chase Manhattan Corp. conservatively estimated wage growth at 6%, compared to Mellon Banking Corp. which estimated it at half that level.

Perhaps even more critical, he found that estimates of the growth i.n future health care costs varied widely. Wachovia Corp., for instance, assumed a 16% increase while California-based Union Bank estimated half that level.

In general, he said, bank trends are similar to general industry.

"Their pension plans are generally over-funded and their health care plans are underfunded," Mr. Mayo said,

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