Despite analysts' doubts, earnings earnings of the top U.S. banks rose again in 1995, taking return on equity and on assets to record highs, and nonperforming assets to new lows.

In American Banker's latest annual survey of the nation's biggest banks, average return on assets for the top 51 climbed to 1.2%, from 1.1% in 1994. Return on average equity rose to nearly 15.8%, from 14.9%.

Nonperforming assets fell to 0.58% of total assets, from 0.69% at the end of 1994.

Wells Fargo & Co. again ranked as the No. 1 bank in profitability, with a 29.7% return on equity, up from 22.4%. Los Angeles-based First Interstate Bancorp, which is slated to be acquired by Wells, was the second-best performer, followed by LaSalle National Corp., a unit of Holland's ABN Amro NV.

Not all banks registered improvements in return on equity. It was down at some large banks, including Citicorp, Chase Manhattan Corp., First Chicago Corp., Fleet Financial Group Inc., and Bankers Trust New York Corp., posted lower returns on equity, either because of merger-related charges, cost-cutting expenses, securities losses, or, in Bankers Trust's case, derivatives-related losses.

Several large superregionals - including Norwest Corp., KeyCorp, State Street Boston Corp., Comerica Inc., Republic New York Corp., and PNC Bank Corp. - posted lower returns, for reasons ranging from higher expenses to cost cutting or losses on securities.

But overall, results were better than most analysts had expected. And many predict that banks will post even higher returns this year as they continue stock buybacks and cost savings from a large round of mergers.

Even Terrence Murray, president and chief executive of Fleet Financial, is bullish on earnings, despite large expenses for his bank related to its acquisitions of Shawmut National Corp. and National Westminister Bancorp.

Although Fleet suffered a sharp drop in return on equity, to 9.3% from 15.9%, Mr. Murray recently expressed confidence that earnings will "improve steadily" this year and "escalate dramatically" in 1997.

Still, some analysts voice increasing doubts over whether banks will be able to continue the high level of earnings without resorting to more stock buy backs or cost reduction programs.

"These sorts of returns on equity are not sustainable in the long term," declared Raphael Soifer, a banking analyst with Brown Brothers Harriman. Managements "are telling us that, by the way they buy back stock rather than reinvest earnings in the business."

Any future downturn in the economy, Mr. Soifer warned, will dampen earnings and increase loan-loss provisions.

"Banking is an economically sensitive industry," Mr. Soifer observed. "As long as the economy remains good, banks will report good earnings. But I do not believe, by any means, that we have repealed economic cycles."

Other analysts, like Lawrence Vitale of Bear Stearns, expressed concern over what he called the "quality of earnings." His worry is that the sources of bank profits are becoming more volatile and risky.

"Reported earnings will go up this year," he said, "because banks still have a lot of discretion with respect to the amount of reserves they have to put up, and with respect to booking gains to make up for shortfalls in one part of the business or the other."

But even if earnings continue to rise, Mr. Vitale added, the "quality of earnings has deteriorated, because companies have taken increasing amounts of risk to see to it that their reported earnings continue to go up.

"In the latter stages of an economic expansion, I'm not so sure how smart that is," he said.

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