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Notification Of Acquisition Of Significant Shareholding

Volume 115: debated on Thursday 7 May 1987

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Lords amendment: No. 8, in page 28, line 21, after "institution" insert

"incorporated in the United Kingdom".

I beg to move, That this House doth agree with the Lords in the said amendment.

The amendment relates to clause 37 which deals with notification of significant shareholdings which was a measure introduced during the Bill's passage on which we had extensive debate. The clause requires shareholdings of between 5 and 15 per cent. in an authorised institution to be notified to the supervisors. Such "significant shareholders", as they are defined, are then subject to the powers to require information and to mount investigations, which appear later in the Bill. However, in the same way as the Bill's requirements for shareholder controllers apply only to United Kingdom incorporated banks, which is clearly the matter of concern, the provisions of the clause were also intended to apply only to significant shareholders in United Kingdom incorporated banks. The amendment is designed to achieve that effect.

I do not wish to disagree with the amendment, but it provides a useful hook on which to hang some points of public interest. One concerns the link of the Bank of England to the £26 million Morgan Grenfell sale. According to press reports, the bankers refused to comply with a request to name a major shareholder. Given that the bank is now committed to more open disclosure of nominee shareholders to prevent abuses of the takeover code, I should like the Minister to comment on these interesting mystery shareholder stakes wherein someone has used a nominee company owned by the Bank of England to build up a stake, apparently of nearly 5 per cent., in Morgan Grenfell during the past few months. One should know exactly how and why this is happening.

To strengthen the Minister's hand and his resolve—of course, I am relying on press reports and do not necessarily have the latest information— I remind him that the Government no longer owe anything to Morgan Grenfell. More recent press reports make it clear that Morgan Grenfell will no longer countenance political payments without the prior agreement of shareholders. Last year, it funded the Tories to the tune of £25,000. No doubt, Central Office will be particularly interested in that report. Even when the former Chancellor, the right hon. Member for Glasgow, Hillhead (Mr. Jenkins), sat on Morgan Grenfell's board, the annual payment to Conservative funds was "stolidly maintained", to quote from a press report. That only confirms the deepest suspicions of Labour Members that the right hon. Gentleman and his party are much more closely aligned with Conservative Members than with anyone else. I think that the Minister is now in a position to come clean about Morgan Grenfell and the Bank of England and exactly what is going on. I am sure that the House—it is not exactly full—will be delighted to hear what the Minister has to say.

4.15 pm

As we are rattling along fairly well, I should like to make a few comments because I was a member of the Standing Committee and important questions have arisen in relation to significant shareholdings. Recently, I heard from the acceptance houses committee, a most distinguished body, which would like to make certain comments. I should be grateful if my hon. Friend the Minister will give me a reply, if not immediately, then shortly after, and in writing, if necessary.

Discussion in the other place drew attention to a number of defects that were thought to exist in the Bill and could have great significance in certain circumstances. The Bill has received a great deal of support from the banking industry and there has been a great deal of helpful consultation throughout its passage.

One concern is the action that the Bank of England may take when an unwelcome shareholder announces that he has 5 per cent. of the voting capital in an authorised institution. When such a shareholder increases his holding to 15 per cent., he has to seek the approval of the Bank of England before going further. If the Bank does not consider him fit and proper, it can take quite drastic action under the Bill to prevent him from doing damage to the bank in which he holds shares.

Unfortunately, the Bill does not make it clear that the Bank of England can do anything before the 15 per cent. point is reached, even if it has already formed the view that the shareholder is not fit and proper. It seems somewhat illogical that an undesirable shareholder should be allowed to play around between 5 and 15 per cent. without interference by the central bank charged with the maintenance of the stability of the banking system. However, a number of assurances have been given in another place by Ministers that the Bank of England would not be powerless in such circumstances and would be able to warn an undesirable off the course. The important point is that there should be a proper warning system to ensure that the results that I am sure we all want —including the Government—are produced.

There is another difficulty in that the Bill does little to resolve the interaction between itself and the Financial Services Act 1986. I served on the Standing Committee on the Financial Services Bill and have viewed this matter with some interest over the past 18 months or so. The main point is that, since the passage of that legislation, it has become clear that two sets of regulations will apply in certain circumstances, which I have described, coming from two different regulatory authorities. That will cause considerable burdens for the banking system. It is hoped that the securities regulators are able to accept the Bank of England as——

Order. I am sorry to interrupt the hon. Member. I allowed the hon. Member for Thurrock (Dr. McDonald) to go fairly wide, but the hon. Member for Stafford (Mr. Cash) is going very much wider than the Lords amendment. We are dealing with Lords amendments and remarks must be addressed to them. I am sure that the hon. Member will bring his remarks into order.

The point that I wish to make—I think that I can make it briefly—is that the Bill could have contained a provision to enable the banking supervision used by the Bank of England to be equivalent to the system used by the securities regulators. It would be helpful to know how the current talks are progressing. We want to be sure that the banking system as envisaged by the amendment tabled in the Lords ensures that banking supervision operates in a way that would not be needlessly undermined by different securities regulators. I think that my hon. Friend the Minister knows the point that I am making. It has been made a number of times, so there is no need to dwell on the subject.

The hon. Member for Thurrock (Dr. McDonald), drew attention to some comments that had appeared in the press about a shareholding in Morgan Grenfell and asked about the implications of that and of nominee shareholdings. My hon. Friend the Member for Stafford (Mr. Cash), also on significant shareholdings in banks, pointed to the situation which applies where an individual or company owns between 5 and 15 per cent. of the share capital of the bank.

I will begin by dealing with the point that was made by the hon. Member for Thurrock about a report in the press. I suspect that that report is the same one as I saw on 29 April, which was not entirely accurate, so it may help, therefore, if I explain the provisions with regard to holdings in companies and banks in particular.

As to nominee shareholdings, under the Companies Act a company has a right to know the identity of its shareholders who are registered through nominee companies. There is an exception to that in section 216(5) which applies to certain categories of shareholders, notably Governments and Heads of State. It provides that a person is not obliged to comply with a notice to reveal identity if he is exempted under that section. That only applies up to the figure of 5 per cent., which is the same figure as applies for the purposes of the Banking Bill in relation to significant shareholders.

Until recently 5 per cent. was the figure required for disclosure in the case of a hid for a company under the rules of the Takeover Panel. That figure has been reduced to 1 per cent., but it applies under those circumstances only once a bid has been announced. For this purpose it is not relevant to the case that the hon. Member for Thurrock has raised.

The nominee position runs out when a shareholding reaches 5 per cent., so at that point there is no further protection on anonymity and, at the same time, any holding of 5 per cent. or more would trigger the provisions that we have included in the Banking Bill. The Bank of England, as supervisor, would have to be notified of a holding to be able to keep a check on significant shareholdings in authorised institutions.

My hon. Friend the Member for Stafford repeated some comments that he had made in the earlier stages of the progress of the Bill. He said that there was little of effect that could be done if a shareholding lay between 5 and 15 per cent. In practice. that is not a fair description of the position. because any undesirable shareholders, to be able to own and take advantage of a shareholding of 15 per cent. or more, would have to satisfy, at that stage, the Bank of England as supervisor that they were fit and proper to be controlling shareholders of an authorised banking institution. That would mean that their conduct as a shareholder of an amount of the capital of that bank that is lower than 15 per cent. but above 5 per cent. would be directly relevant. We have included provisions in the Bill for the Bank of England to be able to obtain relevant information from such a significant shareholder.

To use a phrase that I used earlier in the proceedings of the Bill, the strengthening of the 15 per cent. hurdle, which we accomplished by making it apply not just at the time of acquisition of the 15 per cent. but continuously thereafter, casts its shadow back to the time before the shareholder reaches the figure of 15 per cent. That gives an effective preliminary opportunity for the Bank of England to monitor the conduct and behaviour of a shareholder who may aspire to become a controlling shareholder.

It would be wrong to set a figure lower than 15 per cent. for the strong measures that are in the Bill. After all, they enable voting rights, or even ownership, to be divested, which are very powerful measures. If one had a figure significantly lower than 15 per cent. one could only accompany it by rather weaker measures, and I would not be in favour of that.

Will my hon. Friend look into the question that has been raised that the securities regulators do not seem to be able to accept the Bank of England's method of consolidated supervision under which the capital of the banking conglomerate stands behind its engagements. It appears that it is insisting on a surfeit allocation of capital to each separate business that is undertaken. Talks are occuring on this question. but perhaps my hon. Friend will drop me a note about it.

I will certainly look into that. It is a separate point from the one that we have been discussing, but since it has been raised I will comment on it.

I know that there is the question of capital adequacy calculations under the different supervisory regimes, but I am anxious that a sensible solution should be found to this. Any institutions which are affected or potentially affected by the different regimes and are concerned about it should not hesitate to make their views known and put their comments to the supervisors concerned. I hope that by so doing they will enable a reasonable and workable basis to be found between the two.

Question put and agreed to.