GRS 500
SECRET
FROM HONG KONG
TO PRIORITY FCO
TELNO 2448
OF 29060OZ JULY 86
STANDARD CHARTERED
SECRET
HRK 102/1
- 6 AUG 1986
TOP COPY Q DIST ?
THERE IS STILL MORE SPECULATION THAN HARD FACT FOLLOWING
SIR Y K PAO'S ACQUISITION OF SHARES IN THIS BANK.
2. THE HONGKONG BANK AT ALL LEVELS DENY ANY IMPLICATION FN THE
DEAL AND 1 ACCEPT THIS. SIMILARLY BROWN OF STANDARD CHARTERED
HAS TOLD ME CATEGORICALLY THAT HIS BANK HAS NOT ASSISTED SHIR Y K
IN ANY WAY. WHATEVER HIS SOURCE OF FUNDS (AND SOME SOURCES HAVE
SUGGESTED WE SHOULD NOT RULE OUT THE FORAY AS A PERSONAL VENTURE),
SIR Y K CLEARLY BELIEVES HHS NEAR 15 PER CENT STAKE GIVES HIM
CONSIDERABLE LEVERAGE IN STANDARD CHAPTERED ALMOST IN A SENSE OF
BOARD ROOM CONTROL WITHOUT HAVING NECESSARILY TO GAIN EQUITY
CONTROL. YOU SHOULD BE AWARE THAT SIR Y K TOLD ME THAT HIS NEXT
STEP WAS TO VISIT THE GOVERNOR OF THE BANK OF ENGLAND AND THE
PRIME MINISTER FOR DISCUSSIONS ABOUT FUTURE POSSIBILITIES.
3. BOTH SIR Y K AND BROWN HAVE TALKED ABOUT MAJOR RESTRUCTURING.
THIS APPEARS TO INVOLVE PUTTING TOGETHER THE BANK'S FAR EASTERN
OPERATIONS INTO A LOCAL ENTITY AND POSSIBLY THE ACQUISITION OF
SOME SMALLER HONG KONG BANKS TO BROADEN THE BASE HERE. GRANTING
A LICENCE TO ESTABLISH A BANK HERE IS A MATTER FOR THE EXECUTIVE
COUNCIL BUT ANY LIKELY REGIONAL PART OF STANDARD CHARTERED SHOULD
EASILY MEET THE LEGAL AND FINANCIAL REQUIREMENTS OF THE BANKING
ORD-INANCE. THE MAJOR DIFFICULT PES SEEM TO US TO BE IN LONDON
SINCE IT IS NOT AT ALL CLEAR WHAT BENEFITS WOULD ACCRUE TO THE
ORDINARY SHAREHOLDER FROM SUCH A RESTRUCTURING.
IN THE IMMEDIATE FUTURE, WE APPEAR TO HAVE NO PROBLEMS "N
THAT STANDARD CHARTERED REMAINS AN ENTITY AS OUR SECOND NOTE-
ISSUING BANK. BUT LONGER TERM AND PERHAPS SOONER RATHER THAN
LATER ANY RESTRUCTING IN THE PAO SENSE WOULD HAVE A LOOSEMING
EFFECT ON OUR MARKET BY ENCOURAGING OTHER BANKS TO CONSIDER THEIR
SECRET
POSITIONS
54.