When Richard L. Thomas succeeded the embattled Barry Sullivan as chairman and chief executive of First Chicago Corp. a year ago, many observers predicted he would be little more than a caretaker.

Twice passed over for the top spot, the soft-spoken Mr. Thomas was in the twilight of his career, only four years away from mandatory retirement.

But the conjectured pussycat turned out to be a saber-toothed tiger. And First Chicago will probably never be the same.

For starters, the 35-year First Chicago veteran slashed the dividend by 40% and named four officers to a policy committee from which his successor apparently will be chosen.

Then he refocused the bank on the Midwest and overhauled its ill-staffed corporate banking unit to focus on services instead of high-risk loans.

And in a particularly daring move, last month Mr. Thomas slashed carrying values on $2 billion of realty assets to just 49 cents on the dollar so the bank could unload them at fire sale prices.

There is general agreement that Mr. Thomas has made great strides toward stanching the hemorrhaging at First Chicago, which has $49 billion in assets. But whether he's turned the bank around is far less certain.

The former Army intelligence officer and Fulbright scholar has sworn off the high-risk loans that were First Chicago's self-destructive trademark in the 1980s, raising the question of what products will take up all the looming revenue slack.

Rivals Crowd Territory

Savvy competitors such as Banc One Corp., Comerica Inc., NBD Bancorp, and Old Kent Financial Corp. have carved out handsome pieces of the very Illinois markets in which Mr. Thomas hopes to expand. And analysts worry that further lending woes will surface.

"I'm not so sure everything is cleaned out, and replacing revenues from all the lending arenas First Chicago is exiting will be tricky," says Joan Goodman, a banking analyst with Pershing & Co., Chicago.

Mr. Thomas, 61, isn't issuing any guarantees. "I prefer to let the numbers speak for themselves, and they will be the most significant scorecard at the end of my tenure," he says.

Mentor and Statesman

President of First Chicago since 1974, Mr. Thomas quietly evolved into a mentor and statesman. He graduated among the top 5% of his class at the Harvard Graduate School of Business Administration, and he is a trustee of the Chicago Symphony Orchestra, Northwestern University, and St. Luke's Medical Center.

"I decided some years ago that I didn't have to land the CEO's job in order to conclude that I had led a constructive life," says Mr. Thomas, who was captain of the baseball team at Kenyon College in Ohio.

Some of the most important work Mr. Thomas has done over the past year has been "spending time with our people, encouraging them, getting input from them, counseling them," he says.

"If you have people who are anxious to come to work in the morning, proud of the institution, confident that it is on the right track, it makes a great difference in quality and responsiveness," says Mr. Thomas, whose 1991 salary was $552,107.

So far, investors apparently like what they see. First Chicago's stock is up about 24% since the end of the quarter before Mr. Thomas took over. And the company raised $292 million in a secondary offering during the summer, its first issue of common stock in eight years.

The company's stock was trading Monday afternoon at $31.625, down 25 cents.

"Mr. Thomas has taken the bull by the horns, and I think people will be surprised by what First Chicago ultimately can do, says Robert Albertson, a banking analyst with Goldman, Sachs & Co.

Return to Normality Seen

Mr. Albertson and other analysts believe further appreciation is in the offing. Rationale: The sight of improved earnings in upcoming quarters will restore a semblance of normality to First Chicago.

The company lost $365.1 million during the third quarter as it wrote down realty assets marked for accelerated disposition. For the first nine months, First Chicago reported a loss of $15.9 million.

By contrast, First Boston Corp. expects First Chicago to earn roughly $375 million next year, for returns of 0.7% on average assets and 10% on equity.

Recent lending woes have obscured some truly outstanding results at certain First Chicago units.

Profitable Consumer Bank

For example, the company's $9.4 billion-asset consumer banking unit racked up robust second-quarter profits of $149 million, for annualized returns of 37% on equity and 2.34% on assets.

Hefty after-tax gains of $229 million were recognized on First Chicago's venture capital fund during the first nine months, and analysts expect the unit to see further gains.

First Chicago's stock, however, is still trading at a slight discount from book value, indicating that Wall Street believes Mr. Thomas has quite a ways to go before achieving his goal of leading "the premier banking company based in the Midwest."

Some analysts are holding back because of ongoing concerns about asset quality.

Problematic Image

Investors' perception, says Donaldson, Lufkin & Jenrette analyst Frank R. DeSantis, is that First Chicago is among the banks that "truly deserve the stereotype of bouncing from one problem to the next." Such banks "tend never to be fully rewarded for a credit quality recovery, because it is hard to say another problem is not on the horizon."

Mr. Thomas himself concedes that First Chicago's corporate lending misadventures skewed results for a decade. But he vows there will be no more high-risk forays launched in the name of gaining market share.

"We are not going to be engaged in a lot of aggressive lending and one-dimensional relationships," he says. "We've learned that it just doesn't work anymore."

At the ground level, that conviction is being translated into an accelerated corporate transformation, says executive vice president J. Mikesell Thomas, one of three officers overseeing the corporate and institutional banking group.

Along with giving pink slips to almost 800 workers - more than 10% of the unit's work force - First Chicago installed a computer system to track the scope and quality of each account and is pushing services as never before, Mikesell Thomas says.

How serious is the effort? In 1988, he says, net interest income accounted for 40% to 45% of the unit's revenues. The ratio will drop to as low as 15% this year, and First Chicago envisions a drop to as low as 10% later on.

That doesn't mean Richard Thomas has no further use for a bank charter, however. The executive says he's keenly intent on building consumer and middle-market lending revenues.

So far, the evidence suggests that Mr. Thomas has made progress in revving up home equity lending and the credit card bank, which expects to gain more than two million accounts this year. Loans are flat, however, at American National Corp., the First Chicago unit dedicated to middle-market banking.

More Cost Cutting Resisted

Despite calls from analysts for further cost cutting, Mr. Thomas is standing pat for now, saying First Chicago's officers "can no longer count on saving our way to better profitability."

During the complicated turnaround, Mr. Thomas has carefully orchestrated an apparent four-man race for his own job, which he plans to relinquish in early 1995.

The candidates: W.G. "Jerry" Jurgensen, chief financial officer; Leo F. Mullin, chairman of American National; Mikesell Thomas; and David J. Vitale, head of the corporate and institutional bank.

It's too early in the game for the board of directors to anoint a successor to Mr. Thomas, insiders say, so the somewhat exhausted-looking banker seemingly has little choice but to administer the duties of both president and chief executive.

He is up for the two jobs and more, however: In April, Mr. Thomas will begin a term as chairman of the Reserve City Bankers Association, an affiliation of about 75 of the nation's largest banking companies.

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