TNAG-2474-FCO40-3604-Business-matters-in-Hong-Kong-acquisition-of-Midland-Bank-by-1992 — Page 70

CONFIDENTIAL COMMERCIAL IN CONFIDENCE

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CONFIDENTIAL

COMMERCIAL IN CONFIDENCE

FM HONG KONG

TO PRIORITY FCO

TELNO 1509

OF 031115Z JUNE 92

INFO PRIORITY PEKING, UKREP JLG HONG KONG

PERSONAL FOR HUM, AUSS FROM GOVERNOR.

YOUR TELNO 886: HSBC/MIDLAND/LLOYDS.

1. HSBC HAS SO FAR AGREED THE FOLLOWING WITH THE BANK OF ENGLAND:

A. HSBC HOLDINGS WILL BECOME RESIDENT IN THE UK FOR TAX PURPOSES FROM 1 JANUARY 1993.

B. AS FROM THAT DATE, THE GROUP CHIEF EXECUTIVE CA NEW APPOINTMENT) AND THE GROUP EXECUTIVE COMMITTEE WILL BE BASED IN THE UK AND THE GROUP BOARD WILL NORMALLY MEET THERE. PURVES WILL GIVE UP HIS ROLE AS GROUP CHIEF EXECUTIVE, BUT WILL REMAIN GROUP CHAIRMAN. HE WILL BE BASED IN HONG KONG UNTIL LATE 1993.

C. VARIOUS GROUP FUNCTIONS (E.G. CREDIT, FINANCIAL CONTROL) WILL BE TRANSFERRED TO THE UK. HSBC HAS UNDERTAKEN TO HAVE THE MAIN FUNCTIONS IN PLACE BY END-APRIL 1993.

D. HSBC WILL SET UP A WORKING PARTY TO ADDRESS THE BANK'S CONCERNS ON HONG KONG RISK. IT SHOULD PROVIDE AN INTERIM REPORT THE THE HOLDINGS BOARD BY END-1992 AND A FINAL REPORT WITHIN TWELVE MONTHS FROM ACQUISITION. THE BANK WILL WISH TO REVIEW THE CONCLUSIONS OF THE REPORT WITH HSBC. IN THE MEANTIME, THE PRESENT PROPORTION OF NON-HONG KONG BUSINESS ON HONG KONG BANK'S BALANCE SHEET SHOULD NOT BE INCREASED.

E. HSBC WILL PROVIDE TO THE BANK DETAILED PLANS FOR THE TRANSFER OF HONG KONG BANK OF AUSTRALIA TO THE OWNERSHIP OF HSBC HOLDINGS BY END-DECEMBER 1992 WITH A VIEW TO COMPLETING IT BY END-DECEMBER

1993.

F. INTRA-GROUP FUNDING TRANSACTIONS BETWEEN HONG KONG BANK AND THE REST OF THE GROUP SHOULD BE STRICTLY LIMITED.