TNAG-2474-FCO40-3604-Business-matters-in-Hong-Kong-acquisition-of-Midland-Bank-by-1992 — Page 128

CLIFFORD CHANCE

THE NEED FOR LEGISLATION

Merger of Lloyds and Midland

The first step in any Midland/Lloyds merger would be for Lloyds to acquire a controlling interest in Midland's shares.

Many of the benefits of such a merger, however, depend on an operational merger. The nature of banking (particularly, a bank's obligations of confidence to its customers) means that the only practicable way to achieve an operational merger is by Private Act of Parliament. All recent bank mergers in the UK, going back to and including the National Provincial and Westminster merger, have been achieved in this way.

A Private Act, like any other Act, must complete all the usual stages in both Houses and receive Royal Assent.

Petition with draft Bill attached must normally be presented by 27th November. If that deadline is missed, it is normally necessary to wait until the next 27th November.

Lloyds' shareholder approval, and possibly Midland shareholder

approval, in each case by special resolution (75% of those voting) is required

Passage of the Bill can take up to a year if opposed.

Sale of Package of Branches

To address the competition issue, the sale would need to encompass both the branches and the business of those branches, including the complicated structure of accounts, loans and other dealings between the branch and its customers.

Such a package sale is unprecedented in the UK, and it is very difficult to predict what the reaction of customers would be: customers may not stay with their original bank during the considerable period of uncertainty (see below) or, indeed, after the sale, particularly if they object to being "sold". It is therefore difficult to predict the ultimate effect of a package sale on the competition position.

The sale of a package of branches might itself give rise to competition issues

For reasons given above, a package sale could only be achieved against the background of an enabling Act of Parliament. The timetabling limitations for such an Act are set out above. There would therefore be a considerable period of uncertainty both for the banks concerned and customers.

Lloyds contends that the UK has too many bank and building society branches: if that is right, the sale of a package of branches to a competitor to alleviate competition concerns does nothing to address this.

If there were to be a substantial package sale of branches and customers, this would considerably reduce potential costs savings for a combined Lloyds/Midland.

18 May 1992