GLOBAL BANKING MART COMPETITION HEATS UP

GLOBAL BANKING MART COMPETITION HEATS UP

Too many banks are aspiring to leadership positions in the global marketplace, and not all will succeed, according to a report by Salomon Brothers' stock research department.

The firm recommended the purchase of shares of 12 world-class banking institutions it believes are well-positioned to prosper in the emerging global banking market.Salomon Brothers said focusing on U.S. bank securities ignores the realities of the banking marketplace at a time when U.S. banks' share of the global financial services market has been waning. It noted this has been offset largely by growth in the role of Japanese banks - seven of the world's 10 largest banks as measured by assets are Japanese.

U.S. investors should adopt a global approach to bank stock investing, the report said, adding that the need for a broader approach has been heightened by the recent severe price setbacks in world financial markets, which are likely to place a premium on selectivity in the investment process.

Salomon Brothers said the 12 banks it is recommending all are situated in relatively favorable economies, possess dominant domestic banking franchises, enjoy superior earnings prospects for 1988 and are not highly dependent on securities trading, underwriting or third-party funds management.

In the United States, Salomon recommended J.P. Morgan & Co., Citicorp and Bankers Trust. It said they have superior credit quality and anticipated strong earnings recoveries in 1988. PNC Financial Corp., the premier super- regional bank in the United States, was the final U.S. bank selected.

In the United Kingdom, Salomon singled out National Westminster Bank based on its strong domestic franchise, technological skills and earnings momentum in the U.K.

In Japan, it selected three banks, including Industrial Bank of Japan, whose position in the long-term credit markets in Japan and ability to issue debentures give it a funding advantage.

Salomon's other Japanese choices were Mitsubishi Bank, one of Japan's lead city banks, as well as a key element in the Mitsubishi Group, and Sumitomo Bank Ltd., which traditionally has emphasized profitability, rather than volume expansion.

Toronto Dominion Bank won the nod in Canada because of its stellar credit quality and profitability measures.

In Hong Kong, Salomon chose the Hongkong and Shanghai Banking Corp., based on its recent strategic repositioning moves, improved earnings potential and the most attractive valuation since 1984.

In Spain, Banco Santander was selected, reflecting a favorable economic outlook for the country and the robust profitability of the bank's extensive branch network.

Finally, in Australia, Salomon picked National Australia Bank Ltd.,

because of its excellence in management and improved expense control.

Along with the West German and Swiss universal banks, a few U.K. and French banks - notably National Westminster, Barclays Bank, Banque Paribas, and Banque Indosuez - have made a significant commitment to globalization, the study said.

As the number of global arbitrage opportunities narrows and the players increase, a painful choice will be forced on being a global player or a niche player capitalizing on domestic strengths, it added. There will clearly be winners and losers . . . and a change in market fundamentals could produce a retreat in the global securities markets, reminiscent of that in 1974 and 1980, it concluded.

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