Midland Boosts Provisions for Bad Loans by Selling 3 Banks, New Stock

Midland Bank said Tuesday that it will sharply increase its provisions for possible bad Latin American loans to almost $2 billion by selling three banking units and over $1 billion worth of new stock.

The move by Midland, which banking experts say has the most serious debt exposure in Latin America of Britain’s four major banks, will increase its bad loan provisions by $1.48 billion to $1.93 billion.

The increased provisions will represent 5.8% of Midland’s total lending. They will also mean a one-time after-tax charge for Midland, Britain’s third largest bank, of $1.05 billion.

It was the second bad loan provision increase by a major British bank since U.S. banking giant Citicorp raised its bad loan provision by $3 billion May 19.

Last month, National Westminister, Britain’s largest bank, said it was raising its bad debt provisions by $755 million.

“We had become convinced that we were seriously under provisioned and wished to put things more or less right in one go,” said Sir Kit McMahon, Midland’s chairman.

The bank said it was selling three subsidiaries--Clydesdale Bank in Scotland, Northern Bank in Northern Ireland and Northern Bank (Ireland) in the Irish Republic--to National Australia Bank for around $632 million.

The sale of the subsidiaries gives National Australia bank, one of Australia’s top three banks, its first real toehold in the European market.

Its chairman, Sir Rupert Clarke, said in a statement that the bank had identified Britain and Western Europe as key areas of expansion and believed the acquisition was a major breakthrough.

“It is our intention to maintain each of the bank’s head offices in their present locations,” he said.

It was the second major recent bank selloff by Midland. In February, 1986, Midland sold its San Francisco-based Crocker National Corp. unit to Wells Fargo & Co. for $1.08 billion. Wells Fargo is also headquartered in San Francisco.

McMahon said Midland’s position had seriously deteriorated in recent months as debtor nations were becoming less able and less willing to service their loans.

“We could have just asked shareholders to fill the hole we had made. But we wanted to do this in conjunction with other steps pointing the way to the future instead of merely paying off the past,” McMahon said.

Midland’s $7-billion loan book includes $1.8 billion to Brazil, the Third World’s biggest debtor, and $1.7 billion to Mexico, as well as sizable debts to other Latin American countries.

Analysts and the stock market generally welcomed the move.

The action had “brought a new air of realism” to the bank’s operations, said Martin Green of brokers Smith Newcourt.

“Midland is getting its house in order,” added John Tyce of Alexanders Laing & Cruickshank.