The stunning decline in interest rates recently does not amount to a warning signal about bank stocks for veteran analyst George M. Salem.

"The economy is softening, and that puts the wind to the back of bank stocks. We're still in that pleasant window before having to worry about a recession," he said from his office at Gerard Klauer Mattison & Co., New York.

Falling rates at this point in the business cycle relieve upward cost- of-fund pressure on banks while loan demand remains mostly undiminished. At the same time, banks' credit losses are low.

Rates fell again Tuesday as the bond market's dramatic rally roared on. Banks held up better than most other stocks as money flowed out of equities and into the credit markets.

The Standard & Poor's bank index was ahead 0.27% late in the afternoon, while the broader S&P 500-stock index was off 0.09%.

The benchmark yield on the 30-year Treasury "long" bond slipped below 6.7%, down from 8.2% last November. The 10-year bond yield, a guide for mortgage rates, fell below 6.4%.

And the yield on the three-year Treasury note fell below 6%, presumably increasing pressure on the Federal Reserve to ease credit. The Fed has set 6% as its target rate for overnight loans of bank reserves, better known as the federal funds rate.

Responding to enthusiasm in the bond market, many bank stocks have risen in value by 25% or more this year, topping the performance of stocks in general.

"I think it's important to realize that banks are not trading on fundamentals at this point," Mr. Salem said. "That is a yellow flag if the bond market should flatten out and threaten to go in the other direction.

"Declining rates and hopes for declining rates have been paramount in dictating the performance of bank stocks," the analyst said, and that could continue to be true.

"I've learned over the years." Mr. Salem said, "that you can have bad loan problems at banks and their stocks will continue to go up if the Fed is cutting rates."

Using that scenario, he said, bank stocks are not fully priced "even after the run they have had."

Mr. Salem said he does rule out problems for individual banking companies but sees no industrywide problem on the horizon.

But he quickly added, "I'm mindful of the credit card. And by that I mean the profitability of cards for banks as well as the (credit) losses that might occur."

Mr. Salem this year urged more disclosure by banks of potential losses in the credit card area.

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Shares of the Student Loan Marketing Association were ahead 50 cents at Tuesday's close, to $47, after being upgraded by analysts at both Smith Barney and Lehman Brothers.

The upgradings came after a dissident shareholder group said it believed it had gotten enough votes at last week's annual meeting to elect six of its eight nominees to the 21-member board.

The results of the proxy fight are now subject to litigation (see article this page).

Smith Barney analyst Thomas O'Donnell raised his rating to "outperform," from "neutral." He also raised his 1996 earnings estimate to $5.30 per share, from $5.

Mr. O'Donnell said he viewed the dissidents' program as "very positive" and thinks the stock could "bounce up into the low 50's."

The dissident Committee to Restore Value at Sallie Mae wants to trim the balance sheet by, among other things, repurchasing shares. But it wants to retain its charter as a government-sponsored enterprise to keep the cost of funds down.

Sallie Mae management's central objectives have been to fully privatize by giving up the charter and diversifying into new businesses.

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