Lloyds, Midland Emerging As Stock Pickers' Favorites

LONDON - As the dust settles on the reporting season for British banks, analysts have salvaged Lloyds Bank PLC and Midland Bank PLC from the wreckage as two promising stocks in a recession-hit sector.

Lloyds is frequently cited as a "safe buy," but the industry darling is Midland, albeit a higher-risk investment.

"Lloyds had the best set of figures of the Big Four banks, but the key recovery play is Midland," said analyst Robert Law of the brokerage firm Shearson Lehman.

A Rash of Provisions

Like the other big banks that recently posted first-half results, Lloyds turned in a sharply lower pretax profit than a year ago because of massive increases in provisions for souring loans.

Combined, the four banks took a record $4.29 billion in loan-loss provisions.

Little relief is forecast for the banks on bad-debt provisioning until the second half of 1992. Interest rates are expected to remain high for the balance of the year, hammering their small and midsize corporate customers.

Lloyds Raises Dividend

Lloyds pleased the market by holding bad-debt provisions to a lower level than in the second half of last year, mainly because its reserves are higher than other banks'.

But its biggest appeal was an 8% increase in the half-year dividend. The other banks' payouts were unchanged or reduced, except for Abbey National PLC, which functions more like a building society than a commercial bank.

Investors were pleased by the continued focus on providing shareholder value, and analysts said Lloyds was capable of delivering double-digit dividend growth in coming years.

Michael Woodward, investment director at fund managers Ivory & Sime PLC, said Midland offered a good income return but he preferred Lloyds, despite its lower recovery potential. [Tabular Data Omitted]

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