TNAG-1434-FCO40-1917-Hong-Kong-leading-personality-Sir-Yue-Kong-Pao--businessman-1986 — Page 74

SECRET

GRS 500

SECRET

FROM HONG KONG

TO PRIORITY FCO

TELNO 2448

OF 29060OZ JULY 86

HKK 10211

STANDARD CHARTERED

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 IN THE DEAL AND ACCEPT THIS. SIMILARLY BROWN OF STANDARD CHARTERED

HAS TOLD ME CATEGORICALLY THAT HIS BANK HAS NOT ASSISTED SHRY K

IN ANY WAY. WHATEVER HIS SOURCE OF FUNDS (AND SOME SOURCES HAVE SUGGESTED WE SHOULD NOT PULE OUT THE FORAY AS A PERSONAL VENTURE), SIP Y K CLEARLY BELIEVES HIS 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 RE AWAPE 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 FUTUPE POSSIBILITIES.

3.

BOTH SIP Y K AND BROWN HAVE TALKED ABOUT MAJOR RESTRUCTUPING.

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-I-NANCE. THE MAJOR DIFFICULTIES 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.

i. IN THE IMMEDIATE FUTURE, WE APPEAR TO HAVE NO PROBLEMS IN THAT STANDARD CHARTERED REMAINS AN ENTITY AS OUR SECOND NOTE- ISSUING BANK. BUT LONGER TERM - AND PERHAPS SOONER PATHER THAN LATER ANY RESTRUCTING IN THE PAO SENSE WOULD HAVE A LOOSENING

EFFECT ON OUR MARKET BY ENCOURAGING OTHER BANKS TO CONSIDER THEIR

SECRET

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