What's In This Bank Vault

Banks don't usually have the "hidden assets" that investors look for in industrial or technology companies. But some pros insist that Bank of New York (BK), the nation's 16th-largest bank, has a hidden asset: its profitable securities-processing business--including custodian services for American depositary receipts, corporate trusts, stock transfers, mutual funds, and securities lending.

They believe Bank of New York plans to unlock the hidden value in its securities-processing business--the company's major profit engine--by spinning off a part of the unit. Securities processing "should represent about 33% of Bank of New York's total net income next year," says analyst George Salem of investment firm Gerard Klauer Mattison. He says the bank has taken steps in the past to enhance shareholder value, and he thinks it will do so for its securities-processing operations. As a stand-alone company, he estimates the processing business is worth 15 times 1997 earnings, or about $28 for each Bank of New York share.

Its share price doesn't reflect the value of the bank's "fast-growing, high-multiple" securities-processing businesses, says Salem. Recently, the bank acquired the custodian units of J.P. Morgan and BankAmerica and the corporate-trust arm of NationsBank. He maintains that, at 52 a share, Bank of New York is "extremely undervalued." Based on his 1997 earnings estimate of $5.70 a share, its price-earnings ratio is 9. Says Salem: "It deserves a 12 p-e, or about 70 a share." This year, Salem figures the company will earn $5.10, up from last year's $4.30. A spokeswoman declined comment.

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