For years, rumors had flown about a possible merger between First Chicago Corp. and NBD Corp.

Verne Istock, the former NBD chairman and now chief executive of First Chicago NBD, had discussed the idea several times with his friend Richard Thomas, First Chicago's chairman.

But only after speculation rose that First Chicago was going to be swallowed whole by a larger bank did Detroit-based NBD reach an agreement last July to buy the company for $5 billion. The agreement, which created a $122 billion-asset company, was closed Nov. 30.

What finally caused the stars to come into alignment for these two banks? Mr. Istock said he knew, looking down the road, that his bank would have to get bigger one way or another, and Mr. Thomas agreed.

"What really drove this merger," Mr. Istock said, "is we think you're better off to be proactive and not defensive."

Mr. Istock said he had approached Mr. Thomas about a deal in the fall of 1993, but nothing came of it. Then he approached Mr. Thomas again after being named NBD chief executive in 1994. But it wasn't until last May that the two talked seriously.

The key justification for the merger was cost-cutting. A combined Detroit-Chicago operation dominating key Midwest markets offered many opportunities. The company plans to cut $200 million of costs by mid-1997. As part of the reductions, 1,700 jobs, or 5% of the work force, will be trimmed.

"We saw the opportunity to improve earnings through cost-cutting," Mr. Istock said.

The expense savings and the size of the operation let First Chicago NBD invest in technology and spread the costs of operations over a larger market area, he said.

"The industry is consolidating," Mr. Istock said, "and if we didn't do it, somebody would do it for us."

Mr. Istock said that a merger of equals would let each bank gain advantage. NBD dominates most of the ranks of senior management at the combined institution. But headquarters is in Chicago, and the First Chicago name has been salvaged, although that may change.

Observers differ on the deal's benefits.

Henry "Chip" Dickson, an analyst at Smith Barney, called it a good merger but said its ultimate success depends on the company's execution of its plans.

"You never know until you know," he said.

So-called mergers of equals have been tough deals to iron out, he said, dismissing the notion that any deal is equally beneficial to both sides. "There is no such thing as a merger of equals," he said.

"Clearly, NBD was the winner here," said Michael Durante, an analyst at McDonald & Co., Cleveland. "First Chicago shareholders were the losers."

Mr. Istock is quite aware of the pain caused by other mergers of equals, but he predicted that First Chicago would exceed its goals for the transaction. That encourages analysts.

"First Chicago's expenses were always out of line, and NBD's expenses were always in line," said Joan Goodman, an analyst at the Pershing division of Donaldson, Lufkin & Jenrette in Chicago. "First Chicago knew how to grow profits but really jacked up the expenses."

A question, remains, however, about how the new entity will generate revenue. Mr. Istock said he believes growth will come from personal trust, 401(k) investment products, and private banking. He also predicted the company's dominance in Detroit and Chicago middle-market lending would continue to be profitable. In Chicago, the company controls 33% of that market.

Cash management for large and middle-market clients is another growth area, Mr. Istock said, as is the old First Chicago's successful credit card operation.

First Chicago also plans to extend its presence into other midwestern states.

Despite the huge task at hand of integrating the two banks' cultures, Mr. Istock is still on the hunt for acquisitions.

"Anything is possible," he said. "I'd prefer nothing came across our desk at this point of time because we have too much to do. On the other hand, there are limited opportunities out there."

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