There was a time when bankers in the United States went home at midafternoon every day. That ended when deregulation wiped out fixed margins and forced U.S. banks to look more closely at profitability.

Now, bankers around the world are following suit.

From Tokyo to Madrid to Mexico City, they are coming in early, going home late, and cutting out long lunches. The new catch phrase: return on equity.

|Emphasis on Asset Quality'

"Banks are going to have to improve asset quality, productivity, and the allocation of capital," says Marc Vienot, chairman of France's Societe Generale.

His own bank's target, he notes, is to raise return on equity to between 12% and 15%. Last year, the bank posted 9%.

"Bankers have replaced aggressive marketing and expansion efforts with a new emphasis on asset quality and rates of return," Serge Bellanger, executive vice president and general manager in New York for Paris-based Union Europeenne de CIC, wrote in a recent essay.

Others sound a similar note. In a recent report, "Banking in the 1990s," First Boston analyst Thomas Hanley wrote: "Bank managements have dramatically bolstered their balance sheets over the past few years, and the deployment of this capital will be a major factor determining the |winners'in the investment sweepstakes."

Competition Growing

The worldwide push for higher profitability comes as margins are narrowing, competition from other financial institutions and mutual funds is growing, and protectionist barriers in the financial sector are falling.

In Luxembourg, for example, the number of mutual funds increased nearly 50% last year to some 1,100. Their assets grew by nearly 20%, to $203 billion, while bank assets grew a mere 7%, to $410 billion.

Similar trends are under way in the United States and other countries, where banks face growing competition in everything from mortgages to credit cards to corporate loans.

Margins |Under Pressure'

"Competition is increasing across the entire range of products, and margins are under pressure," says Josef Ackermann, president of Credit Suisse and a member of the executive board of its parent company, CS Holding.

"Everybody's trying to concentrate on what they can do best," adds Mr. Ackermann.

That means a movement toward "niche markets that will be attractive to different players depending on their strengths and abilities," observed Hector Rangel, deputy chief executive of Mexico's Bancomer SA, in a recently published interview.

On the Cuttting Edge

To boost performance, banks are cutting staff, merging operations to reduce costs, and boosting productivity through increased use of technology. Emilio Ybarra, chairman of Spain's Banco Bilbao Vizcaya, notes that last year alone, some 7,000 banking jobs, or 4.4% of the total, were cut in Spain - 635 of them at his bank.

In Switzerland, bankers predict that the number of banks and banklike finance companies will decline from 569 to less than 500 within the next two or three years.

"Growing competition in the 1990s will be one of the major themes - in international banking certainly - but also in our own backyard, among Swiss banks," notes Georges Blum, chief executive officer of Swiss Bank Corp.

In the United States, the number of banks is shrinking quickly. In Japan, consolidation is moving at a slower pace, with banks taking over troubled regional institutions and finance companies.

Mergers and acquisitions have picked up as banks seek to diversify and to spread marketing and computer costs over a broader base.

Holland's ABN Amro Holding, for example, recently agreed to acquire Cragin Federal Bank for Savings, a $2.8 billion-asset Chicago thrift, as part of a drive to build up an efficient banking base in the United States.

British banks with retail operations in the United States are pursuing a similar strategy, while at the same closing unprofitable operations back home.

Cross-Border Acquisitions

Meanwhile, France's Credit Lyonnais acquired Bank fur Gemeinwirtschaft as part of its own cross-border strategy. Commerzbank, another German bank, recently agreed to buy Paris-based Caisse Central de Reescompte, a full-service bank owned by the Paribas Group, in order to broaden its international asset management.

Banks' concern over return on equity is not coming out of the blue.

A worldwide economic recession and problem loans to big international corporate borrowers and local real estate developers have forced many to sharply increase provisions against bad loans in the industrialized world.

Requirements Tighter

Capital requirements, too, have tightened since 1988 under international agreements.

Banks may have to set aside even more capital under guidelines now being drafted for so-called market risk, such as interest and currency exchange fluctuations.

And in the United States, banks are getting pushed one step further by being required to mark their securities holdings and loans to market value - something that could further erode their capital bases in an environment of rising interest rates.

Capital Scarcer, Costlier

Meanwhile, capital, once cheap and abundant, has becoming increasingly scarce and more expensive.

German banks, which could once rely on local markets for their funding needs, are finding that the government's growing budget deficit from infrastructure investments in eastern Germany is raising costs and forcing them to look further afield for funding, to the United States and the Euromarkets.

Latin American banks, no longer able to borrow from other banks, are also increasingly turning to international capital markets.

An Eye on Credit Ratings

And Japanese banks, which only a few years ago paid little or no interest on deposits and seemed to have access to an inexhaustible supply of cheap equity, are paying market rates.

As a result, banks worldwide are nervously watching their credit ratings, since a fall in ratings makes funding even more expensive.

They are also making information about their balance sheets more readily available in an effort to attract international investors.

Still, generalizing is difficult, and some banks clearly have further to go than others when it comes to reaching acceptable returns on equity.

Profitability Higher in U.S.

According to rankings compiled by IBCA Ltd., the London-based bank rating agency, four of the 10 most profitable banks in the world - and 19 of the top 50 - are from the United States.

The seven biggest U.S. commercial banks, for example, had an average return on equity of 22.37% last year.

That compared With 13.62% for the five largest private commercial banks and two largest savings banks in Spain, 4.77% for the 13 major Japanese banks, and only 4.58% for the eight top British banks.

Norwegian and Finnish banks, heavily burdened by bad property loans and an economic slump, posted negative returns of minus-78.9% and minus-21.5% last year.

But all is not gloom and doom.

As interest rates fall and lending margins improve, U.S. banks are posting record profits.

Falling interest rates in other countries could similarly help improve banks' profits.

Outside the major industrialized countries, banking is expanding rapidly, fueled by rapid economic growth and still-low levels of retail and wholesale borrowings.

Commercial Banking Boom

Bankers and analysts note that Asia and Latin America are experiencing a major boom in old-fashioned commercial banking.

Cross-border lending by U.S. banks to Latin America, for example, is on the rise again after dropping for eight years in a row, while Japanese banks are stepping up their lending to China despite problems at home.

Analysts say foreign and local banks can also find ample opportunities for lending to corporate and retail customers in other regions, such as Eastern Europe.

Fee-Based Income Eyed

"In terms of growth in the 1990s, Eastern Europe will be one of the more attractive areas, provided the politics don't intervene," says Matthew Czepliewicz, a London-based bank analyst with CS First Boston.

But in Europe, the United States, and Japan, bankers can no longer afford the luxury of continuing to do what they have done in the past.

The result is that they are steadily trimming capital-intensive lending.

"We're seeing pretty low loan growth overall, and most of what you see is on the consumer side," says Mark Gross, a banking analyst with IBCA in New York.

Instead, bankers say they are developing transactions that are fee-based and less capital-intensive - such as derivatives, underwriting, trading, and securities processing - and adopting complex risk-management strategies.

"Banks ... are turning away from their traditional business of lending money in favor of the more rewarding activities of fee-based services and trading," notes CIC's Mr. Bellanger.

Recommended Strategies

"Balance sheet and capital of a bank are important," says Mr. Ackermann of Credit Suisse.

"It's obvious that the lending business is not profitable and does not maximize return on equity."

Adds Raymond Kirsch, president and general manager of the State Savings Bank of Luxembourg:

"Big banks need to find out what's going on within their institutions and cut costs. Medium-sized banks need to realize they can't do everything. And small banks must be aware they cannot take on significant risks because it could wipe out their capital."

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