TNAG-1650-FCO40-2297-Hongkong-and-Shanghai-Banking-Corporation-(HSBC)-1987 — Page 27

BEEAGH

file

HKC102

RECEIVED IN REGISTRY

17 NOV 1987

DESK OFFICER

INDEX

SECRET (ORIEL)

FROM:

A R Paul

DATE:

REGISTRY

PA

Action Taken

Cc:

Private Secretary

Hong Kong Department

12 November 1987

PS/Lord Glenarthur

PS/PUS

Mr Gillmore

Mr McLaren

HONG KONG AND SHANGHAI BANK AND MIDLAND BANK

PROBLEM

1. The Hong Kong and Shanghai Bank (HKSB) are about to acquire a 14.9% share in Midland Bank. They wish to announce this on 13 November. Should HMG raise any objection?

RECOMMENDATION

3

2. I recommend that we raise no objection to the proposed acquisition. The Prime Minister and the Chancellor of the Exchequer should also be informed. I submit a draft Private Secretary letter for this purpose. I also recommend that we arrange for the Chinese to be informed informally in advance of any announcement.

BACKGROUND

3. In 1986 we learned that HKSB had plans for a merger with the Midland Bank. Ministers asked the banks concerned not to go ahead,: because of the very serious effects this would have on confidence in Hong Kong (and in view of Chinese sensitivities). However, a proposal that HKSB should buy into a UK bank was not open to the same objections. Mr Sandberg gave an undertaking that HKSB would not proceed with any plans affecting the structure of the bank without informing HMG and the Hong Kong Government. His successor Mr Purves, has also accepted this undertaking, on the basis that this did not apply to any acquisition of shares in another bank, but only to arrangements that would change the domicile of the HKSB.

SECRET (ORIEL)