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HSBC still tied to Republic
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September 2, 1999: 8:07 a.m. ET
Bank committed to merger, but seeks details on Japan probe of unit
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LONDON (CNNfn) - HSBC Holdings insisted Thursday that it remains committed to its planned $10.3 billion merger with Republic New York Corp., even as bank officials anxiously awaited further details of a Japanese regulatory probe into a Republic subsidiary.
"Our biggest concern is that we need to get full possession of the facts," Richard Beck, an HSBC spokesman in London, told CNNfn.com.
"We are waiting for Republic management to update us. Until we know the facts, it's hard to speculate," Beck said. "The most important thing is getting a swift appraisal of what happened, how it happened, and what it means."
News of the latest probe opens up a second front in investigators' interest in Republic. The bank, along with Bank of New York, is already at the center of a separate investigation into allegations that it served as a conduit for up to $10 billion in funds laundered by a Russian organized crime syndicate.
On Wednesday, Republic New York Securities Corp. (RNYSC), a wholly-owned unit of New York-based holding company Republic New York Corp., suspended its chief executive and replaced the leadership of its futures division.
Republic said it had acted after receiving a letter from Japan's Financial Supervisory Agency informing RNYSC of "an inspection that the FSA is conducting of the Tokyo branch of an affiliate of a client of RNYSC's Philadelphia office."
In response, the London-headquartered HSBC Holdings -- the parent of HongKong Shanghai Bank, Midland Bank and HSBC USA -- said it planned to proceed with the Republic merger, albeit at a possibly slower pace.
"As a result of this investigation," HSBC said in a statement Wednesday, "it may take longer than originally anticipated to complete the regulatory process related to the merger…" HSBC added that the probe may also delay the proposed acquisition of Republic's Luxembourg-based affiliate, Safra Republic Holdings.
Republic officials have refused to provide details of the probe other than to say it "relates to the accuracy of certain net asset valuations and confirmations" provided to a client of Republic's Philadelphia office.
Republic insisted it was cooperating with investigators and a bank spokeswoman told Reuters Wednesday Republic planned to close the merger.
The spokeswoman said it remained unclear whether the findings of the probe would be serious enough to warrant termination of the merger, which would surpass Deutsche Bank's recent acquisition of U.S.-based Bankers Trust in terms of size.
People familiar with the matter identified the client to The Wall Street Journal as Princeton Global Management Co., a Princeton, N.J.-based investment fund that the newspaper said has been seeking big institutional investors in Japan.
The newspaper said FSA officials conducted a surprise inspection of a company called Cresvale International Ltd. on May 24. A source told the Journal that Republic serves as a custodian for the client assets of "off-shore, private placement" contracts issued by Cresvale, a source told the Journal.
Republic said Wednesday it had advised regulators and law enforcers in the United States of the FSA probe.
The Republic spokeswoman said the merger with HSBC, announced in May, is scheduled to close in the fourth quarter.
Republic New York Corp. has assets of $51.2 billion and stockholders' equity of $3.3 billion, while its subsidiary, RNYSC, has assets of $205 million and stockholders' equity of $76 million.
HSBC, one of the world's five largest banks, operates more than 5,000 offices in 79 countries and territories and has assets of $497 billion and market capitalization in excess of $100 billion.
Shares of Republic closed Wednesday at 69-3/4. In Hong Kong, HSBC stock closed down 1.8 percent at HK$95.00, while the bank's London-listed shares were off 1.63 percent at 274 pence in early afternoon trade in London. 
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