to buy Republic New York Corp. than meets the eye.

Despite scandals revolving around Republic and a sharp drop in the price of its shares, HSBC is not planning to renegotiate its $10.3 billion bid for the New York bank, in part because it fears lawsuits from Republic shareholders, and in part because it fears negotiating with Republic's owner, Edmond Safra.

A source involved in talks between the banks told American Banker that though London-based HSBC reserves the right to change or even scrap the deal, executives have not proposed any new terms to Republic. Instead, HSBC is sticking to its wait-and-see strategy, expecting that any reduction in deal price would be met with hostile lawsuits from Republic shareholders -- offsetting potential savings from restructured deal.

"That could change, should there be a significant impact on the business," the source said. "But right now, even a loss (stemming from Republic's alleged role in a securities scandal) would not be considered material."

The futures division of Republic New York Securities Corp., Republic's investment banking arm, received 90% of its revenues from custodial accounts for Princeton Economics International, a money management firm run by Martin A. Armstrong. William H. Rogers, president of the futures division, was fired amid allegations that he wrote letters to Princeton's Japanese customers, confirming that the accounts were in order. In fact, the U.S. attorney for the Southern District of New York says, almost $1 billion in losses were hidden.

Sources familiar with the bank also say HSBC is particularly squeamish about challenging Mr. Safra, Republic's cunning honorary chairman, who owns 29% of the bank. HSBC is also buying Republic's 49% stake in Luxembourg-based Safra Republic Holdings SA, an elite bank for the world's wealthiest people. HSBC sees that unit as a critical addition to its global private banking business.

"People have tangled with Edmond before and he fought doggedly," said a former Safra associate. "He's not afraid to do that."

Linda Varoli, an analyst with Merger Insight in New York, said the possibility of ruffling Mr. Safra has kept HSBC's behavior "above reproach" since news of the scandal broke Sept. 1.

In 1989, James Robinson, then-chairman of the American Express Co., was forced to apologize for slandering Mr. Safra and to pay $8 million to charities designated by him.

With Mr. Safra's combative history, HSBC has been reluctant to wrangle with him in any way, analysts said. "There hasn't been the negotiating in the press that we've seen with some other deals," Ms. Varoli said. In part that's because Mr. Safra would be "at the right side" of Republic's chief negotiator, she added.

Also, "HSBC wants to do more bank merger deals in the U.S. and it has to be careful not to lose its credibility," Ms. Varoli said.

The public remains unaware of these pressures and many expect the deal to be recast in response to continuing investigations into Republic's relationship with Mr. Armstrong. News of the investigation and Mr. Armstrong's arrest have sent shares of Republic into a downward spiral. The bank's shares, which closed at $59.0625 Monday, are selling at an 18% discount to the $72-a-share purchase price agreed upon in May.

Furthermore, because Republic has not been exonerated by U.S. prosecutors, the bank remains open to lawsuits from investors in Mr. Armstrong's funds.

Making HSBC's choice more difficult is pressure from shareholders at home who are clamoring for the deal to be renegotiated.

HSBC's failure to act, except for its decision to delay the deal's closing for 90 days, has baffled investors and analysts alike.

A leading M&A adviser to the banking industry said the key to HSBC's decision to avoid a renegotiation stems from the nature of the material change clause in the merger agreement. Such clauses allow deals to be scrapped should unforeseen events -- strikes, scandals or lower earnings among them -- occur before the deal closes.

On the question of whether something has happened to cause a material change, the adviser said, "It's never clear and it's not designed to be clear. It's like pornography. I can't describe it but I know it when I see it."

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