COMMERCIAL-IN-CONFIDENCE
Foreign & Commonwealth
Office
Appeichx!!!
8 May 1992
sir Gordon Borrie, QC
Director-General of Fair Trading
Field House
Breams Buildings
London SW1A 2AH
From The Minister of State
LONDON
EC4A 1PR
Dea
HSBC/MIDLAND BANK
John Kemp sought, in his letter to Peter Ricketts of 16 April, our views on the bid by the Hong Kong and Shanghai Bank (HBBC) for Midland Bank.
We note that a merged H8BC/Midland group would create a British-based global banking group with a particularly strong presence in the dynamic Asia-Pacific region, centred on Hong Kong.
We believe that this would be an advantage for Britain, and specifically for London as an international financial centre.
We understand that about 23% of the total assets of a merged HSBC/Midland group (on HSBC's calculation) would be held in Hong Kong. We consider that these assets would be a source of strength to the group rather than a cause for concern, for the following reasons.
First, Hong Kong is a sound and prudently-managed economy, with an outstanding record of economic growth and large fiscal and foreign exchange reserves. HSBC enjoys a long established position at the heart of Hong Kong's monetary and banking system. In addition to being the largest retail bank in Hong Kong, it is:
the major note issuing bank (85% of the total)
the manager of the clearing system; and
HKG's banker.
Given its size and capital strength, HSBC also plays an anchor role within Hong Kong's banking system. Any lack of confidence in smaller or medium sized banks tends to produce a flow of funds into HSBC from other Hong Kong banks. The proposed merger between HSBC and Midland, which would be seen in Hong Kong as strengthening HSBC's international position, would thereby strengthen the whole Hong Kong banking system
COMMERCIAL-IN-CONFIDENCE
HSBC have made
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