Shares of First Chicago Corp. rose Wednesday after analyst George M. Salem of Prudential Securities Inc. upgraded the stock to a "hold" from a "sell."

Asserting that First Chicago "has taken charge of its destiny," Mr. Salem said the bank's strategic plan emphasizes areas where it is strongest - retail and middle-market banking.

"If carried out effectively, it will give the bank a cleaner balance sheet and brighter outlook," Mr. Salem said.

First Chicago gained 37.5 cents, reaching $35, in afternoon trading. The stock is up 40% this year but still sells just under its March 31 book value of $35.07 a share. On average, the nation's largest banks are selling at about 1.4 times book.

Convincing Road Show

The stock has outperformed many other bank issues this month, apparently because of well-received presentations by management in connection with a recent equity offering.

The upgrade leaves Mr. Salem, Wall Street's most bearish bank watcher over the past few years, with only three sell recommendations: Citicorp, Bank-America Corp., and Wells Fargo & Co.

For Mr. Salem, a hold is a good rating. He has hold recommendations on, among others, a trio of highly regarded banks: J.P. Morgan & Co., NBD Bancorp., and Sun Trust Banks Inc.

The analyst is impressed with the sharper focus brought to First Chicago by Richard L. Thomas, who took over the reins from Barry F. Sullivan on Jan 1.

"The two most important things they are doing are de-emphasizing big corporate lending and selling as much as $3 billion of nonperforming, nonstrategic, or otherwise undesirable assets," he said.

Shift to Retail

Instead of large corporate loans, First Chicago will emphasize retail, middle-market, and community banking.

It already holds the largest shares of these segments in the Chicago metropolitan market, Mr. Salem said.

The asset sales may require significant writedowns, but Mr. Salem said the bank plans to soften the impact on earnings and capital by realizing up to $500 million of gains from its venture capital portfolio.

Analysts at Salomon Brothers Inc. have said that First Chicago's $4.1 billion commercial real estate portfolio continues to be the "single largest uncertainty." These assets are likely to be the biggest part of the "exit" pool.

A spinoff bad bank is under consideration by management, as is a bulk asset sale.

Signs of a Recovery

Analysts viewed First Chicago's March 31 results as evidence of a budding, if slow, recovery.

It reported first-quarter earnings of 71 cents per share, up from 63 cents a year earlier. The results were sharply higher than analysts' estimates of about 50 cents.

But operating earnings stayed anemic, said Lawrence W. Cohn of Paine Webber Inc. Net results were bolstered by special gains of 47 cents a share.

But asset quality was stable, and Mr. Cohn, who is neutral on the stock, raised his 1992 earnings estimate to $2.85 per share from $2.50.

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