Hibernia Corp., among the last turnaround stories in the banking industry, has gained the endorsement of Lehman Brothers Inc.

Lehman banking analyst Michael Millman opened coverage of the new Orleans bank by giving its shares an "outperform" rating. That is the firm's second-highest rating and presumes total return of 10% to 25% over the next year.

Hibernia shares were off 12.5 cents to $7.75 in Monday's market, but the stock is still up 34% this year. It ranks as one of the best performers among banks.

Potential as Takeover Target

The analyst thinks the price of the stock could move up to the $10 range within 12 to 18 months.

Mr. Millman said Hibernia has restructured itself, cleaned up its asset quality, and rebuilt capital, and is positioned to increase earning significantly during the next few years.

But he said "the big potential for Hibernia is to receive value for its strong Louisiana franchise" in an acquisition.

He said the bank may command a takeover price "in the low mid-teens" based a projected tangible book value of $5.65 per share by Dec. 1, 1994.

The takeover price range of 2.0 to 2.5 times book value "is supported by some recent acquisitions," he said.

House in Order

As examples, he cited First Union Corp.s' purchase of First American Bankshares, Washington, D.C., "at roughtly 2.2 times clean tangible book value" and CoreStates Financial Corp.'s acquisition of Constellation Bancorp., Elizabeth, N.J., "for about 2.1 times book value, excluding tax credits."

Tax credits valued at about 75 cents per share should allow Hibernia to build tangible book value rapidly over the next year, Mr. Millman said.

The analyst noted that Hibernia averted bankruptcy several years ago "only by dint of draconian measures."

New management took over in early 1992, led by president and chief executive Stephen A. Hansel, former chief financial officer at Barnett Banks Inc.

With Hibernia's financial house how in reasonable order, the company is focused on rebuilding its commercial and consumer business, the analyst said.

Among other things, Hibernia's statewide banking offices have been open about a third more hours this year than last year.

Not Much Help

The bank has had to make its recovery without much help from local business conditions, Mr. Millman noted. Louisiana's economy remains fragile -- but could benefit significantly from increased trade with Mexico under the North American Free Trade Agreement.

The bank's franchise remains strong. It serves markets accounting for 70% of all Louisiana banking deposits, he said. It ranks no less than third in the state's five largest markets.

Meanwhile, credit quality is much improved, with only 24% of nonperforming loans over 90 days past due as of June 30. Gross loan chargeoffs have declined 78% from a year ago and recoveries equaled 41% of chargeoffs in the first six months of this year.

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