WASHINGTON -- The Federal Reserve Board gave preliminary approval Wednesday to the proposed acquisition of Midland Bank PLC by HSBC Holdings PLC, the London-based parent of Hongkong and Shanghai Banking Corp.
Separately, Midland announced that it had agreed to sell its Thomas Cook Inc. travel service unit to Germany's West-deutsche Landesbank Girozentrale for $365 million, a move that observers said enhances the British bank's value as an acquisition target.
The deal does not include U.S.-based Thomas Cook Travel, which was formerly owned by Midland but is now privately held.
The Fed's decision means that the central bank has no immediate objection to the proposed deal by HSBC Holdings, and will wait until the two banking companies complete a merger before it launches a full-fledged review of their U.S. activities.
Lloyds Tactic Fizzles
That is a setback to a rival bidder for Midland. Lloyds Bank PLC asked the Fed last month to scrutinize HSBC's management of its U.S. unit, Marine Midland Banks Inc., before allowing the merger to proceed.
Analysts interpreted the petition as a delaying tactic by Lloyds, which has been frustrated by regulatory obstacles in its own bid for Midland.
The Fed has a say in the merger because all three companies involved have banking units in this country, and thus are bank holding companies under U.S. law.
Fed Sees Level Playing Field
In giving the green light to HSBC, the Fed said it wanted "to limit the effects of United States regulation on an essentially foreign transaction."
The Fed noted that Midland--a $115 billion-asset bank - has only 3% of its worldwide assets in this country.
For now, the Fed has determined that it isn't giving a competitive edge to HSBC by allowing the merger to proceed. Lloyds Bank could have asked the Fed for the same treatment, the Fed noted.
The central bank also concluded that the deal appeared to have no adverse effects for the United States.
The Fed gave HSBC three months to file a formal application to acquire Midland's banking and nonbanking activities.
After it reviews the application, the Fed could ask the combined company to dispose of any units it is not entitled to own under the Bank Holding Company Act.
If HSBC's acquisition of Midland goes through, it would pick up a banking unit in New York, plus some nonbanking subsidiaries.
The bidding between HSBC and Lloyds for control of Midland has been intense. The deal, valued at $6 billion last month, has grown juicier in recent weeks. In April, Lloyds sweetened its deal to $6.7 billion, but last week, Midland upped the ante to $7 billion.
The board of Lloyds Bank is meeting today, at which time it is expected to announce its next move.