A campaign by Unionbancal Corp. to boost shareholder value is beginning to pay off.

Shares of the San Francisco banking company, the third largest in California, are up almost 26% since February, an increase that reflects improved financial performance and a concerted effort by company officials to take their story to investors.

Unionbancal used to draw little attention. But its shares are now followed by 16 analysts, up from only five in 1996.

"There has been a paradigm shift in how it is doing business," Beth A. Messmore, a bank analyst at Merrill Lynch & Co., said of the $32 billion-asset company.

Unionbancal was created when Union Bank and Bancal Tri-State, the California subsidiaries of two Japanese banks, merged. Until recently Bank of Tokyo-Mitsubishi owned about 82% of the company.

"Although we were recognized as a bank with an undervalued bank stock, we had not articulated a story," said Jack A. Rice, Jr., vice president and manger of investor relations at Unionbancal. "There was no statement of performance goals, no statement of strategic goals or the method on how we were going to achieve them."

That changed, however, when Unionbancal initiated a publicity campaign for investors in the United States and Europe before its stock became more liquid. Bank of Tokyo-Mitsubishi sold 28.75 million shares in February, which reduced its stake to 64%.

The company has implemented a cost-reduction program, including a 15% staff reduction by the end of 2000. In August it launched "Mission Excel," a program that is expected to reduce expenses and add $225 million in annualized pretax earnings in the following 18 months by eliminating overlapping operations from its 1996 merger and beefing up its more profitable businesses.

The company's efficiency ratio, which had been a poor 63.06% in the third quarter of 1998, improved to 59.6% in the third quarter this year.

On Friday, Kirsten B. Gard, a bank analyst at Bear, Stearns & Co., initiated coverage with a "buy" rating, citing the company's above-average internally generated revenue growth and recent cost-reduction initiatives.

Shares of the company fell 12.5 cents, or 0.29%%, to $43.75 on Friday, when most bank stocks were down. But traders said the stock was selling off as a result of profit taking after hitting a 52-week high of $46.125 last Tuesday.

Unionbancal "could achieve average earnings-per-share growth of 17% over the next three years, or nearly twice the industry average of 8% to 10% and in line with the best-performing financial companies," Ms. Gard said.

She pointed to the bank's strong market share in media and telecommunications lending.

Additionally, "new cost reduction efforts are paying off in Unionbancal's stellar third-quarter results, and the impact of Mission Excel should become even more apparent over the next several quarters," Ms. Gard wrote in her report.

The bank's improved financial performance has sparked various takeover rumors - including that of a buyout by U.S. Bancorp of Minneapolis - all of which the company refuses to comment on.

"As far as we know, Bank of Tokyo-Mitsubishi wants to remain a majority owner for an indefinite future," Mr. Rice said. But that does not preclude the bank from becoming an acquirer, he said. "We are interested in a fill-in strategy where we are looking at community banks or medium-size banks that are in markets that we underserve or do not serve."

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