Amid the rising tide of bank mergers, Moody's and other credit rating agencies are favoring retail combinations and expressing caution about the outlook for wholesale banking activities.

"The logic for consolidation in retail banking, overall, is more compelling than it is in wholesale banking," Moody's Investors Service said in a recent Banking System Outlook report.

Moody's conclusion-that retail-oriented combinations' credit ratings would tend to be more positive-was based on their relative cost-saving potential, geographical diversity, revenue stability, and compatibility of corporate cultures.

Standard & Poor's Corp. and Duff & Phelps Credit Rating Co. have been expressing similar opinions.

"It's much easier to blend different retail operations," said Moody's analyst J. Ryan O'Connell. "On the wholesale side, you have client issues and very different cultures to deal with."

Mr. O'Connell said the ratings outlooks for pending mergers such as Banc One Corp. with First Chicago NBD Corp., Norwest Corp. with Wells Fargo & Co., and NationsBank Corp. with BankAmerica Corp. are positive based on "the sheer diversity, scale of earnings, and geographic reach" of each.

Moody's said at all six of those companies, the majority of clients are retail-customers who primarily use banks for deposits and loans and have no direct access to capital markets.

Moody's is more wary about some majority-wholesale institutions that have made securities industry acquisitions.

"The positive effects of consolidation in equity underwriting and other capital markets operations are even less predictable because of cultural differences," the Moody's report said.

Its outlook is negative for Bankers Trust Corp., which has a 95%-5% wholesale-retail mix. Bankers Trust bought the investment banking boutique Alex. Brown & Sons last year and the European underwriting operations of Natwest Group in April.

BankBoston Corp., which in May said it would buy Robertson Stephens & Co. from BankAmerica Corp., has a stable rating. Moody's said BankBoston got 45% of 1997 earnings from corporate and capital markets activities, 36% from retail, and 19% from other sources including one-time factors and discontinued businesses.

Business diversification has become an increasingly important determinant of credit ratings-a trend that favors some of the biggest and multinational banking companies.

At Standard & Poor's, most of the larger, focused, multinational and diverse banks have AA-plus ratings. Smaller, more localized and regional banks as a group are at A-minus.

"We are seeing a bifurcation," said Robert Swanton, a director in S&P's financial institutions group. "Higher ratings are going to banks with greater diversity and thus greater strength of earnings."

It does not necessarily follow, from the rating agencies' viewpoint, that mergers are bad for industry ratings. Matt Burnell, a fixed-income analyst at Merrill Lynch & Co., said mergers have been "very positive for U.S. banks."

He said ratings outlooks have been especially favorable for mergers that result in a wider geographic scope. The banks' fortunes become less dependent on a given sector or region, and they can often boost profitability through expense reductions.

Credit analysts said they look for expense controls, stability of earnings, and profitability-all achieved most easily when retail banks come together.

Wholesale institutions do not present the same cost-saving opportunities, and their revenues are more dependent on volatile capital markets activities.

"If they produce more stable, more recurrent revenues from core businesses, you could say that retail mergers are more positive," said Thomas Stone, an analyst at Duff & Phelps.

"The retail banks span several states and millions of customers," Mr. O'Connell said. "The wholesale banks are dealing with a smaller group of clients."

Moody's said that in terms of 1997 wholesale net income, the top three financial companies were Chase Manhattan Corp. at $2.9 billion, Citicorp at $2.4 billion, and Goldman, Sachs & Co. at $1.8 billion.

Mergers would change that on pro forma basis to Citicorp/Citigroup at $3.9 billion, Chase at $2.9 billion, and the new BankAmerica, including NationsBank, at $2.1 billion.

The retail and middle-market changes would be even more noticeable. In that category for 1997, NationsBank earned $2.1 billion, BankAmerica $1.8 billion, and First Union Corp. $1.8 billion. Pro forma after mergers, the new BankAmerica would be at $3.9 billion, Norwest and Wells Fargo at $2.8 billion, and Banc One with First Chicago at $2.7 billion.

Sources of funding could be another reason that the ratings for wholesale banks might suffer, Mr. Burnell said. Wholesale banks tend to rely on the securities markets to fund their lending. Retail-oriented banks have access to lower-cost core deposits.

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