Kemper Securities has downgraded six midwestern bank stocks, saying banks will have more difficulty outperforming other stocks over the next 18 months than during their big rally of the past two years.

"We remain bullish on bank and thrift stocks, especially in the longer term," said analyst Thomas J. Maier. "Just a little less bullish now than we've been."

Bank's next interest margins, a big element of profitability, will probably weaken from current levels, he said. But they will remain healthy, he added, since many price-cutting competitors, notably in the thrift industry, have been eliminated.

Merger Plays Expected

Bank stocks will remain of keen interest to investors, however, because consolidation will continue throughout the industry and especially in the Midwest, he noted.

Downgraded to "hold" from "long-term buy" status were NBD Bancorp, Detroit; Northern Trust Corp., Chicago; Marshall & Ilsley Corp., Milwaukee; First Midwest Bancorp, Naperville, Ill.; and Associated Banc-Corp, Green Bay, Wis.

Huntington Bancshares Inc., Columbus, Ohio, was downgraded to "long-term buy" from "strong buy."

Prices Seen as Fair

Mr. Maier also upgraded one company, raising First of America Bank Corp., Kalamazoo, Mich., to "strong buy" from "long-term buy."

The analyst said he felt NDB and Northern Trust, both well-regarded banks, are fairly priced at current levels and will likely trade in line with the market. NBD was up 25 cents to $33.25 in late trading Wednesday. Northern was up 75 cents to $42.25

Associated, which was up $1.25 cents to $38, is also fairly valued and unlikely to outperform the market except on takeover speculation he said.

First Midwest is a "solid takeover target" but on fundamentals is more than fairly valued, he said. Its shares were down 37.5 cents to $27.125.

He said Marshall & Ilsley "stands out from the crowd in generating 48% of operating revenues from noninterest sources," principally data processing and trust products, "but may be struggling a bit to put the capital it generates from these activities to equally productive use."

Marshall & Ilsley shares were unchanged late Wednesday at $23.

Active Purchaser

Huntington is enjoying record profitability, Mr. Maier said, but is close to his 12-month price target of $29 and also is an active acquirer, "which adds an element of uncertainty." Its stock was unchanged at 25.875 late Wednesday afternoon.

First of America, which was upgraded, has been trading "at a below-average multiple of earnings because of the market perception that it is likely to disappoint shareholders in the future with a very dilutive acquisition."

But Mr. Maier said he did not believe this will happen "and that over time the market will recognize this and restore an average earnings multiple to the stock."

Multiple of 8.5

First of America currently trades at 8.5 times the analyst's estimated 1994 earnings, while other midwestern banks trade near 10 times expected earnings. On Wednesday, the stock was up 50 cents to $39.50.

Mr. Maier noted that after six downgrades, Kemper still rates 19 midwestern bank stocks either as strong buys or long-term buys.

"The region is populated by an impressive collection of high-performing companies that stand to reward investors either as acquirers or as acquirees, or as both," he said.Bad New, Good NewsRating changes from KemperDOWNGRADED Price/book ratio** NBD Bancorp 171.3%* Northern Trust 241.1* Marshall & Ilsley 194.3* Associated Banc-Corp 181.5* First Midwest Bancorp 176.4* Huntington Bancshares 219.5UPGRADED* First of America 164.4%*As of Aug. 10 Source: SNL Securities

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