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HSBC Considers Delisting of Hang Seng Bank Amid Strategic Shift
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Key Takeaways
HSBC is considering a $37B privatization of its Hong Kong unit, Hang Seng Bank.
The offer implies a 1.8 price-to-book multiple, topping Hang Seng's past trading highs.
HSBC will pause buybacks but expects the deal to lift earnings and strengthen its Asia focus.
HSBC Holdings PLC (HSBC - Free Report) is considering the privatization of its Hong Kong subsidiary, Hang Seng Bank, with a valuation of approximately $37 billion (HK$290 billion). Hang Seng shares are listed on the Hong Kong Stock Exchange.
The valuation for Hang Seng implied by the scheme represents a 1.8 price-to-book multiple, which is much higher than its Hong Kong peers. Also, it has a significant premium to Hang Seng’s historical trading prices, even higher than its 3-year high.
At present, HSBC has a 63% controlling stake in Hang Seng. The company intends to implement the delisting through a scheme of arrangement, which includes HK$155 for each “Scheme Share,” a 33% premium over Hang Seng’s 30-day average closing price of HK$116.5 per share. The plan will become effective subject to Hang Seng shareholder approvals and sanction by the High Court in Hong Kong.
Upon the requisite approvals, HSBC Asia Pacific will acquire all the remaining shares of Hang Seng held by minority shareholders, and will get Hang Seng delisted from the Hong Kong Stock Exchange.
Hang Seng’s existing clients will continue to receive Hang Seng’s offerings while gaining comprehensive access to HSBC’s global network and full product suite.
Other Details Related to the Privatization Move By HSBC
HSBC plans to fund the scheme through its own financial resources. It expects an initial capital impact of about 125 basis points on completion but aims to restore its common equity tier 1 (CET1) ratio to 14–14.5% through organic capital generation.
Also, HSBC will pause its share buybacks for the next three quarters. The company continues to target a dividend payout ratio of 50% for 2025. The lender expects this investment in Hang Seng to be accretive to its basic earnings per share.
Georges Elhedery, CEO of HSBC, stated, “Our offer also represents a significant investment into Hong Kong’s economy, underscoring our confidence in this market and commitment to its future as a leading global financial centre, and as a super-connector between international markets and mainland China.”
He further stated, “This proposal fully meets our criteria for value-accretive investments: it aligns with our strategy, enhances growth and scale, does not distract us from organic growth, and delivers greater shareholder value than buybacks.”
Rationale Behind HSBC’s Move
The move aligns with HSBC’s strategic shift toward areas where it has a competitive edge over its peers to strengthen market share and its leadership position. The proposal signifies the company’s confidence in the growth potential for both HSBC Asia-Pacific and Hang Seng.
At present, more than 50% of HSBC’s business is centered in the Asian region. In mainland China, it is growing its wealth business through lifestyle-focused centers, acquisitions like Citigroup’s retail wealth arm, digital upgrades and talent hires.
In India, the company is expanding rapidly, with approval to open 20 branches, adding to its current 26. As the country’s wealthy population increases, HSBC is boosting its presence through initiatives like launching Global Private Banking, acquiring L&T Investment Management and enhancing Premier Banking. These efforts will help the company strengthen its position in the Asian and global markets.
HSBC Price Performance and Zacks Rank
Shares of HSBC have rallied 44.6% this year, outperforming the industry’s growth of 37.6%.
Last month, Bank of Montreal (BMO - Free Report) initiated a process to sell some of its U.S. branches, which hold approximately $6 billion in deposits, per the Wall Street Journal, as cited by Reuters, citing people familiar with the matter. The move highlights the BMO’s efforts to exit select geographies and streamline its U.S. retail footprint following its largest acquisition in 2023.
According to the report, Bank of Montreal is weighing the divestiture of branches in states such as Wyoming and the Dakotas. The branches may be sold either individually or in clusters and could include associated loans. However, the plans are still preliminary and may not ultimately result in a transaction.
Similarly, Deutsche Bank AG’s (DB - Free Report) asset management arm, DWS, is preparing to sell its majority-owned data center platform, NorthC, for a potential valuation of more than €2 billion. This was first reported by The Financial Times, citing people familiar with the matter.
By initiating the sale of NorthC, DB’s arm, DWS is aiming to monetize a fast-growing digital infrastructure business at a time when valuations are attractive. The European data center market is booming, fueled by surging demand from artificial intelligence and cloud adoption.
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HSBC Considers Delisting of Hang Seng Bank Amid Strategic Shift
Key Takeaways
HSBC Holdings PLC (HSBC - Free Report) is considering the privatization of its Hong Kong subsidiary, Hang Seng Bank, with a valuation of approximately $37 billion (HK$290 billion). Hang Seng shares are listed on the Hong Kong Stock Exchange.
The valuation for Hang Seng implied by the scheme represents a 1.8 price-to-book multiple, which is much higher than its Hong Kong peers. Also, it has a significant premium to Hang Seng’s historical trading prices, even higher than its 3-year high.
At present, HSBC has a 63% controlling stake in Hang Seng. The company intends to implement the delisting through a scheme of arrangement, which includes HK$155 for each “Scheme Share,” a 33% premium over Hang Seng’s 30-day average closing price of HK$116.5 per share. The plan will become effective subject to Hang Seng shareholder approvals and sanction by the High Court in Hong Kong.
Upon the requisite approvals, HSBC Asia Pacific will acquire all the remaining shares of Hang Seng held by minority shareholders, and will get Hang Seng delisted from the Hong Kong Stock Exchange.
Hang Seng’s existing clients will continue to receive Hang Seng’s offerings while gaining comprehensive access to HSBC’s global network and full product suite.
Other Details Related to the Privatization Move By HSBC
HSBC plans to fund the scheme through its own financial resources. It expects an initial capital impact of about 125 basis points on completion but aims to restore its common equity tier 1 (CET1) ratio to 14–14.5% through organic capital generation.
Also, HSBC will pause its share buybacks for the next three quarters. The company continues to target a dividend payout ratio of 50% for 2025. The lender expects this investment in Hang Seng to be accretive to its basic earnings per share.
Georges Elhedery, CEO of HSBC, stated, “Our offer also represents a significant investment into Hong Kong’s economy, underscoring our confidence in this market and commitment to its future as a leading global financial centre, and as a super-connector between international markets and mainland China.”
He further stated, “This proposal fully meets our criteria for value-accretive investments: it aligns with our strategy, enhances growth and scale, does not distract us from organic growth, and delivers greater shareholder value than buybacks.”
Rationale Behind HSBC’s Move
The move aligns with HSBC’s strategic shift toward areas where it has a competitive edge over its peers to strengthen market share and its leadership position. The proposal signifies the company’s confidence in the growth potential for both HSBC Asia-Pacific and Hang Seng.
At present, more than 50% of HSBC’s business is centered in the Asian region. In mainland China, it is growing its wealth business through lifestyle-focused centers, acquisitions like Citigroup’s retail wealth arm, digital upgrades and talent hires.
In India, the company is expanding rapidly, with approval to open 20 branches, adding to its current 26. As the country’s wealthy population increases, HSBC is boosting its presence through initiatives like launching Global Private Banking, acquiring L&T Investment Management and enhancing Premier Banking. These efforts will help the company strengthen its position in the Asian and global markets.
HSBC Price Performance and Zacks Rank
Shares of HSBC have rallied 44.6% this year, outperforming the industry’s growth of 37.6%.
Image Source: Zacks Investment Research
Currently, HSBC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Business Simplification Efforts by Other Banks
Last month, Bank of Montreal (BMO - Free Report) initiated a process to sell some of its U.S. branches, which hold approximately $6 billion in deposits, per the Wall Street Journal, as cited by Reuters, citing people familiar with the matter. The move highlights the BMO’s efforts to exit select geographies and streamline its U.S. retail footprint following its largest acquisition in 2023.
According to the report, Bank of Montreal is weighing the divestiture of branches in states such as Wyoming and the Dakotas. The branches may be sold either individually or in clusters and could include associated loans. However, the plans are still preliminary and may not ultimately result in a transaction.
Similarly, Deutsche Bank AG’s (DB - Free Report) asset management arm, DWS, is preparing to sell its majority-owned data center platform, NorthC, for a potential valuation of more than €2 billion. This was first reported by The Financial Times, citing people familiar with the matter.
By initiating the sale of NorthC, DB’s arm, DWS is aiming to monetize a fast-growing digital infrastructure business at a time when valuations are attractive. The European data center market is booming, fueled by surging demand from artificial intelligence and cloud adoption.