As part of the efforts to expand its wealth management business in Asia,
HSBC Holdings plc’s ( HSBC Quick Quote HSBC - Free Report) indirect wholly-owned subsidiary HSBC Asset Management (India) Private Ltd has agreed to acquire L&T Investment Management Limited (LTIM) for $425 million. The purchase deal comes four months after HSBC inked a deal to buy AXA Insurance in Singapore for $575 million.LTIM is a wholly-owned subsidiary of L&T Finance Holdings Limited (LTFH) and the investment manager of the L&T Mutual Fund. LTIM facilitates a distribution platform, comprising leading banks, regional distributors, more than 50,000 independent financial advisers, ascertained digital platforms and a footprint covering 65 locations throughout India.
Completion of the deal is subject to regulatory approvals and customary condition precedents, following which HSBC intends to integrate the operations of LTIM and its current asset management business in India, having an asset under management balance of $1.6 billion as of September 2021.
The transaction will likely be funded using existing resources. It is expected to have a minimal impact on HSBC’s common equity tier 1 ratio, while being immediately accretive to the bank’s earnings following completion. A return on investment of greater than 10% in the medium term is expected by HSBC.
LTFH will be entitled to excess cash in LTIM until the completion of the deal apart from the purchase consideration of $425 million. In the meantime, both LTIM and HSBC will warrant continuity of services to their investors and counterparties.
Per HSBC CEO Noel Quinn, the acquisition refines its business competencies in India by enhancing its scale, expanding reach and capturing 15-20% annual asset management market growth that is expected in India over the next five years. The transaction helps HSBC inch closer to becoming a pioneering wealth manager in Asia.
He further stated, “Together with our recent announcement to acquire AXA Singapore, this demonstrates our commitment to capturing the Asia wealth opportunity. We will continue to invest significantly to achieve that goal.”
Surendra Rosha, HSBC’s co-chief executive Asia Pacific, added, “LTIM’s customer base and wide footprint in India will provide HSBC with much deeper access to a high-growth wealth management market. India’s rising income levels and higher life expectancy are driving an expanding and yet under-penetrated sector.”
“The transaction with HSBC is in line with our strategic objective of unlocking value from our subsidiaries which will help us to strengthen our balance sheet for our lending business. When seen alongside the recent capital raise it provides us with enough ammunition to increase the pace of retailisation in our lending portfolio, which is one of our long-term goals," said, Dinanath Dubhashi, the managing director and CEO at LTFH.
Augmenting HSBC’s asset management business in India will also amplify its capacity to serve the wealth needs of Indian consumers as well as those representing the growing non-resident Indian customer base globally.
In February, HSBC announced that it is on an expansion spree in Asia. It plans to inject $3.5 billion worth of capital into its wealth and personal banking business in Asia, of which approximately two-thirds will be used to bolster its distribution competencies via new hires and technology improvements. The bank also announced plans of shifting capital from the underperforming businesses in Europe and the United States to Asia.
HSBC’s Asia operations account for almost two-thirds of its adjusted profit before tax in the wealth and personal banking business.
Per a Bloomberg article, India is one of HSBC’s largest markets and the bank made more than $1 billion in the country in 2020, making the country the lender’s third largest Asian profit center, following Hong Kong and mainland China.
HSBC’s expansion plans in Asia are expected to help offset some of the adverse impacts that the low interest rate environment is persistently putting on its top line. Nevertheless, competition for fee-generating sustainable businesses in Asia might intensify over the medium term.
So far this year, on the NYSE, shares of HSBC have gained 15.3% compared with the
industry’s growth of 10.3%. Image Source: Zacks Investment Research
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