Most stock analysts are optimistic that mergers resulting from enactment of the financial modernization bill would be positive for banks because out-of-industry combinations would open new sources of revenue for them.

"Merger sentiment is moving away from traditional interstate banking toward cross-industry mergers and acquisitions," said Mark C. Alpert, an analyst at Deutsche Bank BT Alex. Brown, who follows nonbank financial services companies. "For investors, I think the hope is that the focus will shift from cost-saving to cross-selling and revenue enhancement."

That would be a large shift. Since the era of interstate banking began in the mid-1980s -- first through multistate arrangements and then via reciprocal banking -- the emphasis has been on cutting costs through acquisitions that reduce capacity in the banking industry.

"If your end game is only cutting expenses, you are in the wrong business," said analyst Joseph A. Stieven of Stifel, Nicolaus & Co., St. Louis. "Expense savings are one-time events, while revenue gains go on indefinitely."

Some are leery of predicting successful deal-making.

"I think it is unlikely that the emerging financial services conglomerates are going to be substantially more successful than the examples from the 1980s," said analyst Sean J. Ryan of Bear, Stearns & Co. in New York.

Mr. Ryan said he fears that banks buying insurance companies, the most likely result of the reform legislation, would "be one more example of banks' piling into a business they know less well than their own," with disappointing results for investors.

The bulk of recent interstate banking mergers has not been kind to loyal shareholders.

Of the 15 largest bank deals completed in 1997 and 1998, just two companies -- Wells Fargo & Co. and Firstar Corp. -- managed to hit original earnings targets, according to a recent study by analysts at Keefe, Bruyette & Woods Inc. in New York.

Not coincidentally, they are also the only two to have consistently rewarded shareholders with higher prices. That underscores the Wall Street maxim that stock valuations are driven ultimately by earnings growth.

The biggest recent gains for bank investors have been in shares of Citigroup Inc., whose link with Travelers Group is a model for the new kind of cross-industry matchmaking. Its stock -- helped by the combined company's global business profile and deep market liquidity -- recently set an all-time high.

"Literally, with the exception of Citigroup, it has been tough for investors to make a buck in the industry over the past year," said Anthony J. Polini, a bank analyst at Advest Inc. in New York.

As for traditional deals, Mr. Polini said he thinks their overall track record with shareholders means "the more of those deals that get announced, the harder it will be for any buyer's stock to outperform." Investors have moved well away from the giddy environment of spring 1998, he said, "when the stocks involved moved up 10% or 15% on a deal announcement."

Most recent combinations have been a drag on profitability. The cautious boilerplate language in regulatory filings advising that "actual results may differ materially from anticipated results" has taken on new significance, said Keefe Bruyette analysts Thomas F. Theurkauf and Derek J. Statkevicus.

Among the 15 largest deals, besides Citigroup, only Star Banc Corp.'s acquisition of Firstar Corp. and Wells Fargo's acquisition of Norwest Corp have not resulted in any reduction from earlier projections in estimated 1999 earnings, they said.

The Firstar figures do not take account of the subsequent acquisition of Mercantile Bancorp., St. Louis. Both those deals were completed last November, with both companies taking the acquired banks' names.

By contrast, Keefe Bruyette's recent 1999 earnings estimate of $3.40 per share for First Union Corp. was 22% below the level expected when it acquired Virginia's Signet Banking Corp. in November 1997. And it was 23.8% less than the results that were forecast when it acquired Philadelphia's CoreStates Financial Corp. in April 1998.

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