State St., U.S. Bancorp Lure Investors Sea to Sea

Although State Street Boston Corp. and U.S. Bancorp of Oregon are at opposite ends of the continent, both are luring investors in the same promising direction.

"We see strong track records of profitability in these companies that were accomplished through internal growth, not leverage," said Lawrence P. Keblusek, director of investment services for Northern Investment Counselors, a specialized investment unit of Northern Trust Co. in Chicago.

Northern Investment Counselors provides banking and investment services to well-heeled customers with a net worth of more than $2 million.

Earnings Are Strong

Profits picked up sharply in the first quarter, when State Street earned $1.55 a share, a 106% increase from the level a year earlier, while U.S. Bancorp earned 76 cents per share, a 10.2% increase. The State Street results include 84 cents profit on the sale of it card portfolio.

These results follow strong performances in 1990. State Street and U.S. Bancorp. ranked first and second last year in return on assets among the nation's banks with assets from $10 billion to $25 billion, according to data compiled by Keefe, Bruyette & Woods Inc.

They were also among the top five in return on equity. The Boston bank returned returned 17.4% and Portland-based U.S. Bancorp 16.0%

Moreover, State Street's earnings per share grew at a compound rate of 16% a year since 1985, to $3.10 a share last year. U.S. Bancorp did even better - 21% a year from 1985 through 1990, when the bank earned $3.06 a share.

Used in Portfolios

The two banks are among 40 stocks that Northern Investment Counselors uses as the basis for the equity part of clients' portfolios.

"We want to own companies that are growing at a faster rate than the S&P 500 and also have better-quality balance sheets," Mr. Keblusek said.

In fact, until late last year, the group did not include any banks. "About midyear 1988, we began to see a loss of earnings momentum in the bank stocks and sold them," said Mr. Keblusek.

Last fall, some of the high-quality regional banking firms began showing up again in the screening process. Besides the two now being recommended, others included Banc One Corp., Columbus, Ohio; Sun Trust Banks, Atlanta; Wilmington Trust Co., Wilmington, Del.; Bancorp Hawaii; and First Hawaiian Inc.

But none of the money-center banks or the major West Coast banks are under consideration.

"We have no reason to believe that Bankers Trust or J.P. Morgan can't do very well, but our methodology does not allow us to buy them," Mr. Keblusek said.

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