TNAG-2474-FCO40-3604-Business-matters-in-Hong-Kong-acquisition-of-Midland-Bank-by-1992 — Page 117

PRIVATE AND CONFIDENTIAL

COMMERCIAL-IN-CONFIDENCE

uture. It could be argued that the major structural change in ..e branch network (which would be necessary if any savings are to be achieved from the merger) would provide an easier platform from which to move to an altogether lower cost base and that, if this was achieved, Barclays and NatWest would be forced to follow suit. The Lloyds merger if it were carried out' effectively, might provide a spur to change radically the structure, staffing levels and staffing grades of branch banking.

HSBC Holdings takes over Midland

23 If HSBC Holdings were to take over Midland the market shares of the main UK banks would stay roughly the same. There would be three global banks and one medium sized mainly domestic bank (viz Lloyds). There would be no structural change to the domestic banking system, merely a change of ownership of one of the smaller (and weaker) banks. Improved efficiency would then have to come from strengthened competition from Midland.

24 It would have advantages in possibly enhancing London as a financial centre as a result of one of the world's major banking groups, and the only truly transcontinental banking group of such a size being headquartered in London.

A referral to the MMC and Midland remaining independent

25

The Bank understands that a decision to refer the proposed merger to the MMC would involve a minimum of four months to a maximum of six months, from the time of any public announcement of the merger to a final decision by the Secretary of State.

26 The effect of such a delay and the uncertainty generated by a reference - even if it were eventually to lead to the merger being approved could be detrimental to Midland's existing business

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which is in a fragile state of recovery. This would be particularly so if HSBC Holdings withdrew its bid as a result of the referral. Customers and depositors would review their

relationships;

staff would be unsettled; doubts might reappear about the financial soundness of Midland which might spark off a

crisis of confidence.

COMMERCIAL-IN-CONFIDENCE

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