Investors much prefer banks with high percentages of consumer business, a new study shows.

The study, by Oliver Wyman & Co.,indicates that two-thirds of the market capital of the nation's largest banks can be attributed to consumer services.

Wyman looked at 27 of the nation's largest banks that report profits broken down by line of business, such as consumer and corporate lending, mortgages, and processing.

While many large banks have been investing heavily in building their wholesale operations-including their capital markets groups-the consumer businesses have been boosting market valuations, said Peter Carroll, a consultant at New York-based Wyman. The study was based on market capital levels at the end of February.

"Wholesale activities don't make money," Mr. Carroll concluded. "As a result, the industry has become "more aware of retail banking."

The study calculated a price-to-earnings multiple for a bank's individual lines of business, based on the market value of so-called pure plays. MBNA, the credit-card company, for example, is a pure play in the consumer finance business-all its earnings come from the consumer sector.

Wyman then applied these calculations to each bank's product line to determine what the market price should be.

MBNA was the highest scorer, with 100%. It was followed by Norwest, with 91%, and First Union, with 85%.

That helps explain why banks with relatively low levels of retail business are stepping up their consumer activities.

Chase Manhattan Corp., where consumer business accounts for only 29% of its market capital, is an example. "The third quarter of 1998 gave people a real insight into the terrific franchise we have in the retail bank," said Donald L. Boudreau, vice chairman and head of national consumer services at Chase.

"We passed the test of a stressful time."

Analysts attribute much of the recent strength of Chase's stock to its consumer business. The stock has risen 11.1% since Feb. 12, to close at $82.3125 yesterday.

Although the $361 billion-asset Chase is considered by many to be primarily a wholesale bank, it has been building a national retail presence, including 30 million customers through its New York and Texas branch networks and its national credit card, consumer finance, and mortgage units.

Profits from those businesses have been steadily gaining, Mr. Boudreau said. In 1998, profits from Chase's consumer services grew 12%. In the first quarter of this year, profits were up 22%.

The Wyman findings support views expressed by a handful of prominent bankers who see retail services as the future of banking and have steered their companies in that direction.

At an industry conference last fall, Citigroup co-chairman and co-chief executive officer John S. Reed said consumer banking "more than accounts for the full value of the company. I think it is where the future of the banking business really lies."

Small business services, investment and brokerage products, and consumer finance activities have been the main forces behind growth in retail, consultants said.

"Ten years ago, bankers groaned about how difficult it was to make money in consumer banking," said Edward Furash, chairman of Monument Financial Group and a longtime retail banking consultant. "Now it's as if the world turned upside down."

Chase's Mr. Boudreau said the bank has a target of double-digit growth in consumer operations. Its strategy includes intensified cross-selling through data base mining, the completion of a common operating system for Chase's service centers, and an improvement in the bank's Internet banking product.

In a recent memorandum to employees, Mr. Boudreau said an emphasis would be placed on cost controls.

"We are putting in place greater project discipline, controls, and tracking mechanisms," the May 6 memo said.

Consultants said cross-sales through better data-mining-high on the agenda at Chase, Citigroup, and other banks-will be critical to achieving double-digit growth and increase the contribution of retail to market valuation.

"Banks have to come up with a way to prioritize where they can point the rifle," Mr. Carroll said. "There's a lot of potential in data mining, but there is also a healthy bit of skepticism as to whether banks are taking the right approach."

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