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Britain's HSBC Holdings plc, parent of HSBC Bank USA in Buffalo, today warned its $10.3 billion merger with Republic New York Corp. may be delayed by the linking of Republic's Japanese operations to a financial scandal.

Republic said late Wednesday that subsidiary Republic New York Securities Corp. (RNYSC) was notified by Japan's Financial Supervisory Agency about an inspection that the FSA is conducting into the Tokyo branch of a client of RNYSC's Philadelphia office.

"The letter requested confirmation of certain information concerning RNYSC's business with that client," the company said.

Republic said that, on receipt of the letter, it began its own probe into the matter. Based on initial findings, it replaced the management of RNYSC's futures division and suspended RNYSC's chief executive.

HSBC issued a statement saying it had been "apprised" of the situation by Republic New York, and was continuing to work toward closing the merger as previously agreed.

"As a result of this investigation, it may take longer than originally anticipated to complete the regulatory process related to the merger and, in that case, it may be necessary for HSBC to extend beyond Sept. 30 its tender offer for common shares of Safra Republic Holdings S.A. (another Republic New York subsidiary)," it added.

Hong Kong bank analysts said the market here appeared to be sanguine about the issue, and said the impact of the probe on the deal remains unclear.

"From what we know at the moment, this can be described as a minor hiccup, and it would appear that Republic New York has taken swift remedial action," said Simon Maughan, regional bank analyst at Indosuez WI Carr Securities.

Anthony Lok, head of North Asia banking research at Nomura Securities, said he doubted the probe has the potential to derail HSBC's purchase of Republic New York and Safra Republic, or affect the terms of the deal much.

"In terms of renegotiating the price, I suppose anything is possible. I wouldn't hold any great hope on that front," he said.

But an analyst with a U.S. investment bank, who asked not to be named, said he was advising clients to "take some profit" on the news.

While it is good that HSBC and Republic NY have been quick in notifying the market of the problem, he said the speed may also indicate that it is a bigger scandal than it looks at first sight.

"I can't imagine it's only a small problem," he said.

The analyst also noted that the news comes after HSBC this week announced the failure of its bid to buy Seoulbank, and commented: "They're certainly having a string of bad luck."

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