TNAG-2474-FCO40-3604-Business-matters-in-Hong-Kong-acquisition-of-Midland-Bank-by-1992 — Page 107

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public issue of sufficient significance to justify an MMC reference. On "foreignness" and Hong Kong issues, the FCO are evidently satisfied that there are no grounds for concern, and it would seem unlikely that the MMC would be better placed to judge the point. To some extent these issues are also being addressed by the Bank of England in the context of its prudential control. To the extent that they did not fall within the scope of "prudential rules" it would be necessary to satisfy the Commission under the third indent of Art. 21(3) of the existence of one or more "legitimate interests" meriting action by the UK authorities. On the question of the "foreignness" of HSBC, for example, We understand that the EC Commission would be likely to resist strongly any argument under this head, because of the danger that other Member States would exploit it to block cross-border mergers generally. If the above arguments do not provide grounds for referring HSBC to the MMC, then it follows that there is no basis for any communication to the Commission under Art. 21(3), since by definition, no "appropriate measures" would be contemplated.

IS THERE A CASE FOR EQUALITY OF REGULATORY TREATMENT?

66. There remains the second argument- ie, "evenhandedness". It is of course established policy not to make a reference on evenhandedness grounds between competing bids. It would seem difficult to argue that, in the absence of substantive concerns about the HSBC bid, "evenhandedness" was of itself a legitimate public interest under Art. 21(3). Certainly it seems likely that any argument of this type would be most strongly resisted by the Commission, because accepting it might involve allowing Member States to scrutinise all aspects (including competition) of an ECMR merger in any case where a competing bid fell outside the ECMR, which would seem contrary to the principle of exclusive jurisdiction behind the Regulation.

67. In any event, it is arguable that there is equality of treatment now - but by different authorities. For example, if jurisdictions in each case were reversed, would it not be likely that the UK authorities would clear the HSBC case and that the EC would open proceedings on competition grounds on Lloyds?

CPMS/OFT 20.5.92

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