HSBC in talks to sell French units for US$3.17b

PUBLISHED : Saturday, 01 March, 2008, 12:00am
UPDATED : Saturday, 01 March, 2008, 12:00am

Banking giant HSBC Holdings said it was negotiating to sell its seven French regional banking subsidiaries to a French financial institution for about US$3.17 billion.

The proposed deal, which has not been finalised, comes just as the world's fourth-largest lender is due to announce its results for last year on Monday.

The sale is seen by analysts as a way to respond to appeals by shareholders for the bank to reform its business strategy.

'The timing of the sale is a bit tricky,' said Ivan Li Sing-yeung, an analyst at Kim Eng Securities. 'The deal has been rumoured for some time. Obviously the bank would like to divert market attention from its profits, which have been hit hard by the subprime mortgage crisis.'

Knight Vinke Asset Management, a HSBC activist investor, welcomed the move and said the offer confirmed its view of the bank's obsession with diversification.

'HSBC has never enjoyed comparative advantage in the French market,' said a spokesman of the US investment firm. 'The sale is a step in the right direction.'

HSBC said yesterday it had received 'a firm cash offer' and entered into exclusive talks with Banque Federale des Banques Populaires, a group focused on retail banking.

The proposed price equals 21 times estimated after-tax earnings for last year and 3.7 times shareholder equity at the end of December.

'The regional banks have operated under their own brands and with decentralised management,' said Stephen Green, the chairman of HSBC Group. 'This offer is an opportunity for HSBC to redeploy capital to other investments as we pursue our strategy and rebalance our activities towards emerging markets.'

HSBC derived almost 50 per cent of its revenue from Asia, the Middle East, Latin America and other emerging markets last year. It has been asked by Knight Vinke to concentrate on its Asian and emerging markets business rather than the US and European operations in order to unlock shareholder value.

The company has moved to address many of the concerns, including the sale of its US$1.75 billion residential mortgage business in Australia in December. Mr Green said last year the bank planned to generate more than half of group profits from emerging markets in the next five years.

'The price offered by the buyer is attractive,' said William Wong Kwok-wai, an analyst at BOCI Research.

Mr Wong said the bank was not short of capital, although it was haunted by the US subprime mortgage problem, and the move showed the bank was now paying more attention to Asia and emerging markets.