First Chicago NBD Corp. is back in the hunt for acquisitions and will focus on its home region.

"The Midwest is what we know-we're comfortable with the markets," said Verne G. Istock, chairman, president, and chief executive officer of the $113 billion-asset banking company.

"But we aren't limited to that," he said in a telephone interview last week. "We're looking to expand into growing markets that are attractive."

Similar comments that Mr. Istock made to analysts helped spur a jump in the share price of Mercantile Bancorp of St. Louis. First Chicago and First Union Corp. were seen as the most likely suitors in widely rumored merger talks. (See back page.)

Analysts said Mercantile is probably the most desirable target in the Midwest, with its 23% share of the Missouri market, according to SNL Securities.

First Chicago would have to consider an acquisition of at least that size, investment bankers say, to maintain its status as an industry leader.

In the past year, they observed, the size difference between the six largest U.S. banking companies and the next six has grown. In that top tier, First Union and NationsBank Corp. have been especially aggressive on the acquisitions front.

How First Chicago and others in the second six respond will determine if they take places alongside the industry elite or wind up as targets themselves.

Analysts suggested First Chicago will look at companies that will bolster its middle-market business.

"To get the capital markets capabilities competitive, they need more mass," said Ryan, Beck & Co. analyst Lawrence Cohn. He said a deal for Mercantile or Firstar Corp. of Milwaukee, or a merger of equals with Cleveland-based National City Corp. would fill the bill.

Although First Chicago's stock has gained enough recently to make bids for these companies feasible, some say the bank faces some challenges.

First Chicago's 14.9 price-earnings multiple is below those of many peers, including U.S. Bancorp (19.4), Banc One Corp. (18.4), and Norwest Corp. (16.9).

The low multiple stems from the 1995 merger of First Chicago Corp. with NBD Corp. of Detroit, a combination of big but rather different organizations. First Chicago was known more for its corporate lending, NBD for retail and middle-market concentrations.

First Chicago may not have the currency to prevail in a competitive contest for a desirable company, as happened recently over Barnett Banks Inc. of Florida.

"In an outright bidding situation, they can't win," Mr. Cohn said.

Analysts also noted that First Chicago faces competition not only from First Union and others from outside the Midwest, but also from Dutch bank ABN Amro, already a potent rival in the Chicago region.

Sources said ABN Amro, which in the past two years has acquired banks, thrifts, a brokerage, and futures trading shops in Illinois and Michigan, recently held preliminary talks with Northern Trust Corp., the Chicago- based banking company with a strong trust and securities processing specialty. Those talks apparently have broken off.

ABN Amro spokesman Jules Prast downplayed the bank's interest in Northern Trust or any other bank until it fully integrates Standard Federal Bancorp, the Troy, Mich.-based thrift it bought last year for $1.9 billion.

"We never say never, but in general we want to pay attention to integrating Standard Federal rather than new acquisitions," Mr. Prast said. "Clearly it is our intention to defend our franchise in the Midwest."

Mr. Istock gave the impression in his interview that he was wary of being drawn into a pricey deal. NationsBank's agreement to pay 4.1 times book value and 23 times earnings for Barnett represents "a disturbing trend," he said.

"You're stretching the envelope. Unless you can realistically see the synergies from cost savings or revenue enhancements, it's silly to promise them. The savings that banks are talking about now are so high it raises questions about whether they're achievable."

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