Bottom Line: Midland finds a happy home

THE TAKEOVER of Midland Bank by HSBC has had one obvious synergy, in the profits of Midland Global Markets, their combined treasury activities. These proved to be the power behind the group's results, overcoming the disappointingly slow improvement in bad debts.

There was not enough detail to disentangle how much of the surge in MGM revenue from pounds 175m to pounds 296m in the latest two half-years was due to the takeover, how much to organic growth and how much to a lively six months in the markets up to the end of June. But anecdotal evidence from competitors confirms that the merged treasury operation has become a much bigger and more confident player.

A more interesting question for the long term is how far the new parentage is helping Midland to win back market share in the UK, where the bank's losses and lack of capital long restricted expansion.

Early indications are that customer numbers are moving Midland's way. For large corporate customers the increase in market share has been 'quite dramatic', says Brian Pearse, the chief executive. The merger between the Midland and HSBC treasury businesses has produced a huge dealing room in London with the muscle to bid for a bigger chunk of the deals of the largest multinational companies. That tends to bring in their other banking business.

At the other extreme, Midland's share of the UK small business market has grown from 9 to 12 per cent. In the personal market, Midland has stabilised numbers after dropping for some time, although lending remains slow.

In all these areas there may be a simple but potent benefit from the HSBC takeover in that Midland managers are now able to say yes to lending propositions more often.

With HSBC behind it, Midland has the potential to be a strong competitive threat to its high street rivals. Analyses of Dun & Bradstreet company credit data by Hugh Pye of Flemings have confirmed that Midland has been gaining market share, while Lloyds has been losing it. The 19p rise in HSBC's share price yesterday was justified.

Buy In Shops

TIM BROOKES, chairman of In Shops, believes the way to shoppers' purses is through their stomachs. Yesterday, he put his money where his mouth is by paying pounds 8.1m for Milbank, which operates the Job Lot Trading Co chain of discount grocery shops.

The logic is that including a food retailer in In Shops shopping centres brings in the customers. Faith in that formula is backed up by a pilot study, at the Byker centre in Newcastle where Job Lot has been trading since April. Customers have jumped from 8,000 to 22,000, and turnover at the other outlets has tripled.

In Shops is paying a historic multiple of 8.4 times - less than half its own. That makes Mr Brookes' forecast of at least 15 per cent earnings enhancement this year and 20 per cent next look credible.

There are, of course, caveats. Job Lot's profits were flat at pounds 1.45m last year, as competition from other discounters intensified. In Shops is also suffering. Pre-tax profits in the year to March fell from pounds 1.96m to pounds 1.36m - although the dividend was increased 4.5 per cent to 2.75p.

The deal is being financed through a 14 million share placing, subject to a clawback by shareholders at 58p. Assuming only the enhancement promised in the current year the shares, down 1p at 65p yesterday, stand on a prospective multiple of 15 times. Take up the rights.