TNAG-2528-FCO40-3698-Proposed-acquisition-of-Midland-Bank-by-the-Hongkong-and-Sha-1992 — Page 12

SECRET COMMERCIAL IN CONFIDENCE

116236 MDHOAN 0354

MONTHS.

5. THE WORST POSSIBLE SITUATION, FOR HONG KONG AND FOR GALLEY, WOULD BE ONE IN WHICH GALLEY MADE A PUBLIC BID AND THE BANK OF ENGLAND WERE THEN OBLIGED TO MAKE CLEAR THAT THEY HAD NOT YET APPROVED THIS AND THAT THEIR APPROVAL COULD NOT BE TAKEN FOR GRANTED. THE REASON FOR THIS WOULD OF COURSE BE THAT, BECAUSE THEY HAD NOT COMPLETED THEIR STUDY OF THE INFORMATION YOU ARE PROVIDING AND HAD NOT THEREFORE COME TO A VIEW, A FALSE MARKET WOULD BE CREATED IN THE SHARES OF THE TWO COMPANIES. BUT THE MARKETS COULD WELL INTERPRET THIS AS A LACK OF CONFIDENCE ON THE PART OF THE UK AUTHORITIES IN GALLEY.

**

6.

THE UK AUTHORITIES THEREFORE STRONGLY URGE YOU NOT TO OPEN DISCUSSIONS WITH THE CHINESE ON 2 MARCH. IF YOU DO SO, HMG WILL NOT BE IN A POSITION TO TELL THE CHINESE ABOUT THE ATTITUDE OF THE UK AUTHORITIES TO THE PROPOSALS. THIS WOULD INCREASE THE

RISK OF AN ADVERSE CHINESE REACTION.

7. I VERY MUCH HOPE THAT YOU WILL CONCLUDE THAT THE RIGHT COURSE FOR GALLEY AND FOR HONG KONG WOULD BE FOR YOU TO CONTINUE YOUR DISCUSSIONS WITH THE BANK OF ENGLAND WITH THE AIM OF MEETING THEIR CONCERNS, AND MEANWHILE NOT TAKE ANY STEPS WHICH WOULD RISK REVEALING THAT THE UK AUTHORITIES WERE NOT AT PRESENT IN A POSITION TO TAKE A VIEW ON ANY BID YOU MADE FOR

QUARTERDECK. ENDS.

HURD

YYYY

SA DISTRIBUTION

MAIN

NO DISTRIBUTION

HD/HKD

PRIVATE SECRETARY

SIR J COLES

*** MR BURNS

ADDITIONAL

SIR T BURNS,

HMT

SIR N. WICKS, HMT

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F

MR MCINTYRE, HMT

SIR P GREGSON, DTI

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