SECRET (ORIEL)
A
The Governor of Hong Kong confirmed that this was the case.
4. We have been aware for some months that HKSB were actively
looking for opportunities to acquire an interest in a bank outside
Hong Kong. The news, conveyed to the PUS on 11 November by the
Governor of the Bank of England, that HKSB and Midland Bank were on
the point of agreement, was therefore not unexpected. Details of
the agreement are in the attached draft letter.
5. What is proposed is less that acquisition of a controlling interest (for which Bank of England approval would be necessary).
It is also quite distinct from a merger and there is also no
question of control of HKSB moving from Hong Kong. It therefore
falls within the limits of what the Prime Minister has said would be
acceptable to HMG. The fact that the Bank of England's approval
would be required before HKSB could increase its share in Midland
Bank (and that HKSB will undertake not to do so for a period of
years without the consent of Midland Bank) provides useful
reassurance about the likely future course of events.
6. We have consulted the Governor of Hong Kong. His preliminary views are attached. His advice is that we should arrange for the
Chinese to be informed informally in advance of any announcements.
I so recommend, and am preparing suitable instructions which will
need to issue today.
A. R. Pawc
A R Paul
SECRET (ORIEL)