Prudential Securities Inc. resumed coverage of regional banks Wednesday with analyst Ruchi Madan posting "buy" ratings on the stocks of Norwest Corp. and First Tennessee National Corp.

Ms. Madan said both Norwest and First Tennessee have better revenue and earnings growth prospects than does the banking industry overall, yet their stocks sell at attractive prices.

The analyst also issued initial "hold" ratings on five bank companies: Bank of Boston Corp., Barnett Banks Inc., Huntington Bancshares, Mellon Bank Corp., and PNC Bank Corp.

Ms. Madan has been at Prudential for four years, most of that time as assistant to veteran banking analyst George M. Salem. Mr. Salem left late last year and is now at Gerard Klauer Mattison & Co., New York.

Ms. Madan said she aims to recommend banks that she believes have developed the ability to transcend the slow-growth syndrome afflicting the industry generally.

Essentially, she said, successful banks are doing this in two ways - by focusing on faster-growing nontraditional lines of business and by employing good retail banking strategies.

About half of Norwest's earnings come from nonbank sources, she noted. The largest chunks come from the Minneapolis banking company's consumer finance subsidiary, which contributes 30% of earnings, and from its mortgage company, which kicks in another 10%.

Also, its "banking stores" are at the center of a strong retail strategy deployed across a banking franchise that covers 15 states.

Nevertheless, the relative valuation of Norwest's shares has slipped.

"During 1993 and 1994, Norwest traded at a 20% premium to other regional banks," Ms. Madan noted.

"Although Norwest's earnings outlook and balance sheet have continued to strengthen relative to the industry, its premium has evaporated in 1995," she said.

"We think this is temporary and represents a buying opportunity," she said. "Longer term, we expect this premium to rise even further."

The stock price was unchanged Wednesday, at $28. Ms. Madan's 12-month price target is $35.

She termed her other buy-rated company, First Tennessee, "underfollowed (by Wall Street analysts), underappreciated and undervalued." The stock's 20% rise this year lagged the 30% increase across the regional bank universe, she said.

First Tennessee gets half its revenues from nonbank businesses, and its revenues should grow 10% to 15% annually over the next five years.

In particular, the Nashville banking company's bond division specializes in buying and selling bonds for banks, thrifts, and credit unions with less than $2 billion of assets. "These institutions have been overlooked by Wall Street because of their size," she said.

As a result, the bank is a heavy underwriter of federal agency securities, she said. Indeed, its $12 billion in underwritings during the first half of this year ranked it as ninth-largest in such activity.

In retail banking, First Tennessee's 95% customer retention ratio handily beats the 80% industry average. Moreover, the company typically sells three products per customer versus an average of 1.5 products per customer at other banks.

"First Tennessee may also pop up on the screens of investors looking for takeover candidates if merger mania continues," Ms. Madan said, although a deal is probably not imminent.

Shares of First Tennessee rose 75 cents, to $50, in trading Wednesday. Ms. Madan's 12-month price target is $60.

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