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wish HKSB to become a truly international bank they cannot expect it to remain straitjacketed within Hong Kong: major investment on the lines of the Midland Bank acquisition is a necessary and desirable element of its development.
5. Sir D Wilson has recommended that he should inform the Chairman of the Hong Kong and Shanghai Bank of the Chinese reaction to the acquisition before Sir R Evans responds to Ke in Peking.
We agree that this would be desirable, both because Purves may be able to provide additional points which Sir R Evans could use; and more generally because the Bank should know of the Chinese concerns and would be best placed to reassure them of their intentions. I
therefore recommend that Sir D Wilson and Sir R Evans should be asked to proceed accordingly.
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11: FOLLOWING STRICTLY PERSONAL FOR GOVERNOR FROM MCLAREN
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13 MIPT: HONG KONG AND SHANGHAI BANK
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Revised speaking note as follows:
the message from his superior which Ke passed to McLaren
has been considered very carefully by the British
Government, in consultation with the Governor of Hong
Kong:
no approval was required from the banking authorities for
this acquisition, either in the UK or in Hong Kong. No
consultation was therefore involved: neither we nor the
Chinese Government can realistically expect to be
consulted about commercial decisions of this nature:
neither HMG nor the Hong Kong Government knew about the acquisition by HKSB of Midland Bank shares until shortly
before the public announcement. We thought it right to
share the information with them, in strict confidence,
because of the discussions which we had been having with
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(iv)
them about the financial and monetary structure in Hong
Kong and because of the importance of HKSB's position in
this:
the acquisition is a normal commercial move by the HKSB which in the context of its ambition to compete on the world stage as a major international bank has for some time been looking for opportunities to extend its operations in Europe (in the UK in particular). The unsuccessful attempt to take over the Royal Bank of Scotland in 1981 shows that this ambition is of Long standing. The acquisition of 14.9% of the Midland Bank represents an important investment for HKSB, but it is not disproportionate, given the size of the Bank's overall resources. The agreement with the Midland Bank will enable the two banks to complement each other's strengths and weaknesses: this is a healthy and desirable development, giving HKSB an important stake in Europe,
thus enhancing its global role.
Defensive points:
(v)
Chinese may argue that acquisition of all of Marine Midland began by taking partial stake, and/or draw attention to comment in UK press that minority stake in Midland is likely to be only a prelude to a full merger Later. You should emphasise that there is no evidence to
support this. The shareholding does not make HKSB a quote controller unquote of Midland under the 1987 Banking Act and the mutual exchange of Board seats is confined to the respective Chairmen and the Chairman of HKSB's London Board. Furthermore the agreement contains covenant by HKSB not to increase holding or to divest within next three years without Midland consent. This strongly suggests a strategic holding of mutual benefit rather than
any longer term plan.
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