Banking analysts scrambled last week to identify stocks that have what it takes to withstand an increasingly rocky market.

Bank of New York Co., BankAmerica Corp., NationsBank Corp., and First Union Corp. were among stocks that won favorable reviews as analysts sought companies with sharply honed business strategies.

After a couple of years of industrywide growth, "1997 will be the first year where we'll see a real divergence in how the banks perform," said Lawrence W. Cohn, of PaineWebber.

"Companies increasing business clarity and focus steadily outperformed the markets, while those who have diversified without direction have underperformed," added Catherine Murray of J.P. Morgan Securities.

Bank of New York's stock was upgraded to "buy" from "hold" by George Salem, of Gerard Klauer Mattison & Co., citing a focus on generating fee income.

Bank of New York's "processing business is the superstar of the show," Mr. Salem said. "It's a vastly growing, high-margin business, and an important part of the case for the stock."

By 1998, processing could constitute 40% of overall revenues for Bank of New York, Mr. Salem estimated.

Mr. Cohn of PaineWebber agreed that securities processing is the "crown jewel" of Bank of New York. "They've put their best foot forward, and the outlook is exceptional," he said. "Bank of New York is one example of how banks focusing more on fee-based revenues are reaping their benefits."

Mr. Salem raised his $45 price target for Bank of New York, and increased his 1997 earnings-per-share estimate to $2.85 from $2.75, following the bank's annual analysts meeting last week.

Separately, Mr. Cohn at PaineWebber reiterated a "buy" recommendation - his highest rating - on First Union, Charlotte, N.C.

He attributed his optimism to First Union's focus on capital markets and capital management businesses.

"Now that lending volume is slowing, we will see a real divergence between those banks who invest in their fee-based business, and those who do not," Mr. Cohn said. "First Union has already made substantial investments, and is ready to reap the benefits of their investment going forward."

First Union's revenues are up 12% while the rest of the bank industry's revenues are up only 5%, he estimated.

Other superregionals, such as Bank One Corp. and First Bank Systems Inc., who have not made a commitment to capital markets, face the risk that a "decent chunk of their customer bases will be disintermediated," Mr. Cohn said.

"Everyone is living in the same interest rate environment, but there's not enough room in there for everyone," he said.

First Union announced a strategy Nov. 1 to boost its fee-based business revenues by 10% to 40% of its total revenues. Traditional bank revenues make up 60% of those revenues.

Meanwhile BankAmerica's restructuring, announced Wednesday, won an upgrade from Keefe, Bruyette and Woods to "attractive" from "market perform."

Keefe raised its 1997 estimates for earnings per share by 27 cents to $8.25.

Again, a focus on generating more fee-based revenue, through the custody and asset-management businesses, warranted the attractive rating, said David Winton, an analyst in the group.

In a report issued Thursday, Ms. Murray of J.P. Morgan & Co. wrote that geographic reach, product expertise, merger integration, and more cost- efficient operations are among the ways banks can reap higher returns.

Ms. Murray noted that NationsBank will use its merger with Boatmens BancShares Inc. to build asset management expertise.

Since the Charlotte-based superregional announced a merger with Boatmens of St. Louis in August, the bank has been focused on putting together transition teams for many parts of the bank.

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