Credit the rumor mill with this much: Acquisitive Chairman Hugh L. McColl was indeed working on a takeover. But it wasn't Bank of Boston, First Chicago, or Chase Manhattan--all reported NationsBank Corp. targets in recent weeks. Nothing, even, that would broaden the nation's third-largest bank's reach outside its stronghold in the Southeast.

Instead, NationsBank is acquiring small-fry Bank South Corp. for the almost quaint price of $1.6 billion in stock. You could all but hear Wall Street deflate with disappointment. "Can you believe that a $1.6 billion deal is trivial?" asks NationsBank President Kenneth D. Lewis. "It's a sign of the times."

The deal doesn't accomplish what many expected of McColl: A landmark acquisition with the scope of Chemical Banking Corp.'s $10 billion purchase of Chase. But trivial it's not. The purchase consolidates NationsBank's position in the hot Atlanta market, blocking Wachovia Corp. or SunTrust Banks Inc. from nabbing Bank South. "This is a signal to the nation that the show isn't over in the South," says Interstate/Johnson Lane Inc. analyst John J. Mason.

At a hefty 2.5 times Bank South's book value, NationsBank is spending big by McColl's standards. But it will pay for the purchase with its own inflated stock, up 40% on the year. And the in-market combination allows for far more consolidation than buying in the Northeast would: NationsBank plans to eliminate 100 of the combined banks' 337 Georgia branches. That should trim $174 million in operating costs, it says, and make the acquisition a contributor to earnings by 1997.

The deal underscores NationsBank's plan to emphasize retail banking, even as it builds its "wholesale" presence in loan syndication and capital markets, and fits with McColl's strategy of growth through acquisitions in the South. And the big one? Investment banking sources say McColl has considered bids for Bank of Boston and Chase--then backed off when the prices got too high. Lewis believes the Bank South acquisition strengthens NationsBank's home front and enables McColl to "wait for another deal that makes sense." The question: With big banks succumbing almost weekly, how long can McColl afford to wait?

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