TNAG-1487-FCO40-2044-Hong-Kong-banking-Banking-Bill-1986-1986 — Page 123

GRS 500

SECRET

FROM HONG KONG

TO PRIORITY FCO

TELNO 2448

OF 29060OZ JULY 86

STANDARD CHARTERED

SECRET

HRK 102/1

- 6 AUG 1986

TOP COPY Q DIST ?

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 FN THE

DEAL AND 1 ACCEPT THIS. SIMILARLY BROWN OF STANDARD CHARTERED

HAS TOLD ME CATEGORICALLY THAT HIS BANK HAS NOT ASSISTED SHIR Y K

IN ANY WAY. WHATEVER HIS SOURCE OF FUNDS (AND SOME SOURCES HAVE

SUGGESTED WE SHOULD NOT RULE OUT THE FORAY AS A PERSONAL VENTURE),

SIR Y K CLEARLY BELIEVES HHS 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 BE AWARE 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 FUTURE POSSIBILITIES.

3. BOTH SIR Y K AND BROWN HAVE TALKED ABOUT MAJOR RESTRUCTURING.

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-INANCE. THE MAJOR DIFFICULT PES 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.

IN THE IMMEDIATE FUTURE, WE APPEAR TO HAVE NO PROBLEMS "N

THAT STANDARD CHARTERED REMAINS AN ENTITY AS OUR SECOND NOTE-

ISSUING BANK. BUT LONGER TERM AND PERHAPS SOONER RATHER THAN

LATER ANY RESTRUCTING IN THE PAO SENSE WOULD HAVE A LOOSEMING

EFFECT ON OUR MARKET BY ENCOURAGING OTHER BANKS TO CONSIDER THEIR

SECRET

POSITIONS

54.