HSBC asset sale continues with Bank of Shanghai exit

Banking giant could make up to US$700m profit from sale of 8pc stake to Banco Santander

PUBLISHED : Thursday, 12 December, 2013, 3:29am
UPDATED : Thursday, 12 December, 2013, 4:41pm

HSBC Group's sale of its entire stake in Bank of Shanghai marks the banking giant's latest effort to boost liquidity amid tougher capital requirements under the Basel III banking regulations and trim what it calls "non-core" assets.

Europe's biggest bank said yesterday that it has agreed to sell its entire 8 per cent stake in the Shanghai-based lender to Spain's largest bank, Banco Santander. The deal is expected to be completed in the first half of next year. Both parties refused to disclose the details of the deal.

HSBC first bought a stake of 24 million shares in Bank of Shanghai for US$63 million in 2001. In 2010 it paid another US$44 million for another 24 million shares, said HSBC spokesman Gareth Hewett.

The bank valued the stake at US$468 million on its balance sheet in September.

Analysts said the final price could reach US$800 million, as Bank of Shanghai's market capitalisation is expected to stand at around US$10 billion following its initial public offering in Hong Kong. That would mean the deal could net HSBC about US$700 million, much less than the US$2.6 billion it made by selling down its entire stake in Ping An Insurance in April.

"For HSBC this is a very small asset. But it reflects exactly what the bank has been doing over the past three years - selling non-core assets and preserving capital," said Jim Antos, a banking analyst at Mizuho Securities Asia.

"If they don't sell it now, HSBC would have to subscribe to the initial public offering of Bank of Shanghai, which would require them to invest more capital," Antos said. Market watchers expect Bank of Shanghai to list in Hong Kong early next year to raise US$2 billion.

After the sale, the major asset HSBC will own on the mainland is a 19 per cent stake in Bank of Communications, which analysts said the London-headquartered bank is unlikely to sell given its strategy. Apart from that, it owns 49 per cent of HSBC Jintrust Fund Management.

"We do not think HSBC would sell its stake in Bank of Communications as the two parties hold closer ties [compared to Bank of Shanghai], underscored by their credit-card joint venture among other initiatives. Between the two Shanghai-headquartered banks, Bocom is a more significant investment for HSBC," said Grace Wu, an analyst at Daiwa Securities.