SECRET (ORIEL)
prev Jusly told the Chairman of HKSB would be acceptable
to us in political terms.
Ministers asked HKSB not to
proceed with their proposed merger with Midland
Bank in 1986; but we have indicated that a proposal that
HKSB should buy into a UK bank would not be open to the
same objections. It is quite clear that what is now
proposed would not remove control of HKSB from Hong Kong,
which was the reason for our serious reservations about
the merger idea.
But
We cannot of course be sure of future developments.
one useful element of the proposed agreement is that
there would be a public statement to the effect that HKSB
would not increase its proportional share of the Midland
Bank for a certain period (probably 3 years) without the
consent of the Midland Bank Board. In practice, any
increase in HKSB's share would exceed all 15% controlling
interest limit stipulated in the Banking Act and would
therefore also require the approval of the Bank of
England. This could give Ministers a further opportunity
to take account of the political implications, should
that be necessary.
The Foreign Secretary thinks it would be sensible to
inform the Chinese informally in advance of any
announcement. The Joint Liaison Group meeting now going
on in Peking provides a very convenient opportunity for
an informal low key approach to be made. Suitable
instructions are being prepared and will issue today.
SECRET (ORIEL)
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