Sanford C. Bernstein & Co. initiated coverage of Bank of New York Co. on Wednesday but rated the stock neutral in the wake of its recent upswing.

Analyst Ronald I. Mandle said he is impressed by the bank's "significant growth potential in credit cards, processing, and capital markets."

Problems from commercial real estate loans and highly leveraged transactions are down sharply, he said, and credit quality and capital adequacy ratios are better "by a wide margin" than most New York banks.

Bank of New York shares, which have gained 13% in the past month, were off 62.5 cents to $59 late Wednesday.

Mr. Mandle said the stock is 11% below his target, on a relative price-to-earnings basis, but its recent strength made it less attractive than some other bank stocks now. This prompted his "market-perform" rating -- Bernstein's version of a "neutral" rating.

"Bank of New York has remade itself in the past three to four years, thanks to its acquisition of Irving Bank Corp. and the workout of credit problems," the analyst said.

"It has swung its earnings mix considerably more in the direction of transaction processing and other fee-based revenues and away from traditional corporate lending," he said.

In addition, the balance sheet has been enhanced "by asset shrinkage, retained earnings, and a common stock offering last year," Mr. Mandle noted.

He added that the bank has the dominant branch network in the suburbs of New York City, with 254 branches versus 140 for Chemical Banking Corp. in the same counties.

The pending acquisition of the $4 billion-asset National Community Banks Inc., Maywood, N.J., "will be the first, but probably not last," venture for Bank of New York in that neighboring state, he said.

No Dilution Seen After '93

The deal, to be completed this quarter, should contribute to earnings by next year, Mr. Mandle said.

Dilution in earnings should amount to 10 cents per share this year, he added.

Bank of New York is paying a hefty $652 million in stock for the New Jersey bank, but Mr. Mandle said he expects no dilution after this year because Bank of New York will likely be able to cut more than 35% of National Community's expenses.

The bank "has experience in boosting productivity from the Irving deal of 1989 and from the yearend 1992 acquisition of Barclays Bank [branches] in New York City and its suburbs," he said. The Barclays transaction, he noted, added to earnings "almost from day one."

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