A conservative approach to lending and dealmaking won Old Kent Financial a new fan Friday.

Analyst Michael Plodwick of Lehman Brothers initiated coverage with an "outperform" rating, saying the Ohio banking company is poised to increase earnings by 12% to 15% over the next several years.

"Old Kent Financial fits our thesis of investing in high-quality banks with revenue-driven, top-line earnings growth," he said.

Mr. Plodwick said shares could reach $52 within the next 12 months. The stock closed Friday at $45.875, up 31.25 cents.

Mr. Plodwick set a $2.30 earnings-per-share estimate for 1999, 17% more than its 1998 earnings of $1.97 per share. The estimate includes a positive impact from the recently announced CFSB Bancorp deal.

Management, Mr. Plodwick said, "recently raised the bar" to improve returns on assets and equity and to improve the efficiency ratio.

Old Kent lends to quality companies to fuel earnings, said Robert Warrington, the chief financial officer and vice chairman.

"We take an aggressive approach to business development but are conservative with the risks we're willing to undertake," Mr. Warrington said.

As a result, the company does not lend to foreign businesses, hedge funds, or marginal companies, Mr. Warrington said. The company will not overextend itself in search of revenues, he said.

The conservative bent will allow Old Kent to choose its own destiny, Mr. Plodwick said.

"Although Old Kent is often mentioned as a takeover candidate, we believe the company has the ability to remain independent indefinitely, given its superior track record and earnings outlook," Mr. Plodwick said.

Additionally, "it would not surprise us if the company were to continue to take advantage of its strong relative stock price and make more acquisitions of its own," Mr. Plodwick said.

The assessment came as bank stocks gained on positive economic news showing unemployment rates at levels that seemed unlikely to not compel the Fed to raise interest rates. (See story on page 1.)

Meanwhile, KeyCorp's lackluster retail division is a drag on the company's earnings, said Katrina Blecher of Brown Brothers Harriman, who initiated coverage with a "neutral" rating.

The retail operation-which provides the largest chunk (36%) of KeyCorp's revenue -should see earnings increase just 4% this year, Ms. Blecher said.

KeyCorp estimates the unit could gain 8% to 10%. But Ms. Blecher cited lower revenues from branches because of the sale of 200 offices, along with softness in the auto finance sector.

"We would look more favorably on the operations at KeyCorp should the company demonstrate an improvement in its retail division," Ms. Blecher said.

She did say that the company's purchase of McDonald & Co. "appears to be a home run."

The acquisition should increase KeyCorp's growth in fee income from about 15% in 1998 to 30% in 1999, Ms. Blecher said.

Separately, Mark Fitzgibbon, a banking analyst at Sandler O'Neill & Partners, said in a report that he likes First Charter Corp., a Concord, N.C., "company that is very profitable and has an exceptional track record but has not garnered the attention it deserves." Its shares rose 25 cents, to $18.375.

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