Shares of Firstar Corp. jumped Tuesday after Thomas Hanley of Warburg Dillon Read initiated coverage of the company with a "buy" rating.

The $38.5 billion-asset product of Star Banc Corp.'s November merger with the old Firstar has a senior management "with the drive, ability, and enthusiasm to make the transaction work," Mr. Hanley said.

The stock price rose $1.50, to $94.125.

"Our expectation is the new Firstar will quickly achieve the high level of performance characterized by the former Star Banc," Mr. Hanley said. "Outstanding performance is accomplished by adopting an operating philosophy that is truly shareholder-focused.

"Every strategy and operational decision made in the company is aimed at increasing shareholder value."

Mr. Hanley estimated earnings per share of $3.40 for 1999 and $4.10 for 2000, representing growth of 24% and 21%, respectively.

"Management has expressed a high degree of confidence in the estimates and has a history of beating expectations," Mr. Hanley said. The company can also be counted on "to look for additional acquisition opportunities which could further improve an already outstanding fundamental outlook," he said.

Mr. Hanley is not the only analyst with good things to say about Firstar.

The banking company "is an outstandingly run franchise that has consistently produced double-digit earnings growth," said Eric Rothmann, a banking analyst at Stevens Inc.

"An extremely savvy management team deploys its excess capital not only to buy back shares but, just as importantly, through increasing dividends and expanding operations," Mr. Rothmann said. "Firstar has expertly learned to balance commercial banking operations with consumer banking."

In other action, options trading in State Street Corp. was heavier than usual. The activity suggested the potential for an announcement from the company, possibly merger-related, said Paul Foster, a market strategist at 1010WallStreet.com, Chicago, an investment advisory firm.

A spokesman for State Street declined to comment on the speculation. Shares ended the day off 31.25 cents, at $85.3125.

The Standard & Poor's bank index fell 0.77% and the Dow Jones industrial average 0.44%. The Nasdaq bank index dipped 0.77% and the S&P 500 0.24%.

Citigroup gained 50 cents, to $67, and Chase Manhattan Corp. 50 cents, to $79.25. J.P. Morgan & Co. slid $1.875, to $123.9375.

Shares of Mellon dipped 75 cents, to $70.1875, despite upbeat words from Judah Kraushaar, banking analyst at Merrill Lynch & Co. Mellon could receive an earnings boost in the second quarter if it divested laggard businesses, he said.

Mellon has completed the sale of its credit card operation and announced a buyer for its commercial mortgage servicing business. Efforts are still under way to sell the residential mortgage servicing operation and the ATM network business.

The sales "could enhance Mellon's annualized earnings by 6% to 8% and lead to a positive earnings surprise" in the second quarter of this year, Mr. Kraushaar said.

He also cited increasing cooperation among the company's businesses. Dreyfus, Mellon's mutual fund arm, is creating retail distribution opportunities for Boston Co., which offers investment management advice.

Because of its earnings mix, Mellon should return 21% to 23% on equity over the coming year, Mr. Kraushaar said.

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