NEW YORK - In a blow to banks seeking broader powers, a New York court has overruled a state Banking Department decision to let banks sell annuities.

On a suit brought against the department by an insurance agents group, State Supreme Court Justice Harld J. Hughes said last week that New York banking law did not permit annuity sales by state-chartered banks. The Supreme Court is second to the Court of Appeals in New York's legal hierarchy.

Richard J. Freshour, the assistant New York attorney general who argued the Banking Department's case, said Tuesday an appeal is likely.

As it stands, New York state-chartered banks will be more restricted than competing national banks, which can sell annuities under a 1990 rule of the Office of the Comptroller of the Currency.

Ruling Criticized

Executives at state-chartered bank assailed the court ruling.

"It's a shame, because banking could have done a good job with annuities," said William Dougherty, group executive vice president at Key Bank in Albany, one of 99 New York-chartered commercial banks.

|Incidental Powers'

The New York suit was brought by Brace, short for Bank Regulation: Agents Committee Effort. Brace, representing three insurance agent trade groups, challenged an interpretive letter issued by the state Banking Department last year granting a state-chartered Citicorp affiliate permission to sell annuities.

"The court has given a very narrow reading to bank powers that will tie the Banking Department's hands in the future." said Kimberly C. Lawrence, an attorney with Hinman, Straub, Pigors & Manning. Her Albany law firm represented Brace.

New York's banking law permits banks incidental powers" that are "necessary to carry on the business of banking." Federally chartered institutions that sell annuities are empowered by a similar clause in the National Bank Act.

But Judge Hughes ruled there is nothing in New York's law that expressly permits commercial banks to broker annuities, nor is it the state bank regulator's place to authorize banks to do so.

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