Merger Would Create Britain's Largest Bank : Acquisition: Midland Bank agrees to buyout by parent company of Hongkong and Shanghai Banking Corp.

From Times Staff and Wire Reports

Great Britain's Midland Bank said Tuesday that it has agreed to be bought by the parent company of Hongkong and Shanghai Banking Corp., creating Britain's largest bank and the 10th biggest in the world.

The buyout by HSBC Holdings, a diverse financial services firm in Hong Kong that already owns 14.9% of Midland, will create a bank with total assets of $248.6 billion as well as a strong force in Britain's ailing banking industry.

The proposed merger triggered speculation in Britain that a wave of other bank mergers may follow in that country.

Combining the two banks creates a banking firm with a large presence in Asia, where Hongkong Bank is the largest non-Japanese bank. It also owns Marine Midland Bank in Buffalo, New York state's ninth-largest bank, and a major bank in Canada.

The new bank dwarfs most U.S. banking firms in size. Citicorp, the largest in the United States, has $217 billion in assets.

The merger comes after an aborted attempt to combine the two banking firms in 1990. Hongkong Bank, much the stronger of the two institutions, has owned its stake in Midland since December, 1987. The acquisition, which still needs regulatory approvals, would give Hongkong and Shanghai Bank a form of insurance in the event of political trouble in Hong Kong after 1997, when the British colony reverts to Chinese rule.

The deal requires the approval of the Bank of England, the Hong Kong Banking Commission and the U.S. Federal Reserve, because of Hongkong Bank's U.S. holdings. Some British banking experts said the proposed acquisition may meet some resistance on nationalistic grounds.

In the mid-1980s, the governor of the Bank of England once indicated he believed that the nation's "core" banks should remain under British control, although Europe's economic and political landscape has changed considerably since then.

One thing both banks have in common is that they have stumbled in the United States. Midland's disastrous ownership of California's Crocker National Bank ended when Midland sold Crocker to Wells Fargo & Co. in 1986 in what turned out to be a bargain for Wells.

Hongkong Bank has had its own problems with its Buffalo-based Marine Midland Banks, suffering losses due in part to bad real estate loans.

The combined group's total assets compare to $236.5 billion at Barclays, now the biggest British bank. The new group would rank in assets just behind Mitsubishi Bank Ltd. of Japan. The world's biggest bank in terms of assets, as of now, is Japan's Sumitomo Bank.

No terms were given but the deal could cost HSBC close to $5.3 billion, stock market analysts said, based on a starting point of $6.20 a share.

After HSBC, Midland's largest shareholder is the Kuwait Investment Office, with a 10.5% stake.

Despite expectations of a loss, Midland reported a small profit of $61.6 million for 1991, indicating that cost-cutting measures were taking effect.

Hongkong Bank emerged with significantly higher net profits of $736 million, compared to $402 million in 1990.

Midland's acquisition by Hongkong and Shanghai is expected to boost competition in British banking because the merger creates such a strong player.

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