Safra and HSBC agree $450m price cut

EDMOND SAFRA yesterday agreed to take a $450m (pounds 278m) cut in the price for his stakes in Republic New York and Safra Republic Holdings, saving the $10bn sale of the banks he founded after months of delay.

Analysts said the cut was in line with expectations, and Mr Safra's renewed commitment to the deal would be welcomed. They added that the structure of the renegotiation, which leaves the price for Republic's other shareholders unchanged at $72 a share, was good news for them as they had expected the price to be cut to as low as $60 a share. Republic shares jumped 6.7 per cent to $70518 in midday trading in New York.

HSBC agreed in May to pay $10.3bn for US-based Republic and its Luxembourg- based private banking affiliate, Safra Republic Holdings, massively expanding the global banking giant's presence in the US market and in private banking.

But the deal was put on hold in September when US fund manager Martin Armstrong, a major client of Republic's futures brokerage, was charged with cheating Japanese investors out of $950m in a securities fraud scheme.

Republic, which has not been charged in the investigation into Mr Armstrong's Princeton Economics International, launched its own inquiry and delayed shareholder votes on the HSBC deal. HSBC and Mr Safra sought to renegotiate the deal to account for potential liabilities from the Princeton affair.

After weeks of speculationthat HSBC would secure a price cut, HSBC and Mr Safra announced that they plan to complete the renegotiated deal by the end of this year. They said that Mr Safra would personally accept a price cut of $450m for his controlling stakes in Republic and Safra. This means Mr Safra's payout from the deal is reduced to about $2.75bn and the total price drops to $9.85bn.

They also agreed that Mr Safra would bear a percentage of any losses from the Princeton affair above an unstated threshold, with the total borne by Mr Safra to be no more than $180m. They did not state what that threshold would be, nor the percentage of losses that would be borne by Mr Safra.

But sources close to the deal told Reuters the total losses from the Princeton affair were not expected to exceed $1bn. They also said Mr Safra would bear 60 per cent of any losses above a threshold of between $500m and $1bn.

British banking analysts said HSBC now appeared to have insulated itself from much of any potential losses. Its shares closed up 7.5p at 763p.

Mr Safra also said that he would take an active role in ensuring a smooth transition for Republic's clients. HSBC spokesman Richard Beck said: "This statement is a slightly deeper ratification that Mr Safra is 100 per cent behind the deal personally." Some UK fund managers feared that Republic's major private banking clients, who have close personal times with Mr Safra, would leave once he sold out.