HSBC continues China banking divorce
HSBC's likely sale of its stake in Bank of Shanghai later this year is part of an ongoing divorce as global lenders rethink their China strategy.
Let's take a closer look at the latest news, followed by the bigger picture and what's likely to come next as frustrated global banking giants like HSBC and Citigroup (NYSE: C) readjust a China approach that has yielded little more than headaches over the last decade. According to the new reports, analysts believe that HSBC is likely to sell off its 18.7 per cent stake in regional lender Bank of Shanghai later this year. Such a sale would come as the Shanghai-based lender is expected to raise up to US$2 billion in a dual listing in Hong Kong and Shanghai later this year, with HSBC receiving about US$800 million for its stake, the analysts said.
So the next questions become: who are the potential likely buyers for HSBC's probable asset sale, and how are foreign lenders likely to change their approach to China in the next five years? In answer to the first question, I seriously doubt that other foreign lenders will be lining up to buy Bank of Shanghai. Most big foreign lenders are still busy repairing their balance sheets after the global financial crisis, and seem to finally realise that buying stakes of Chinese counterparts isn't the best path into the market. Their lack of interest was on prominent display last year when HSBC ended up selling its Ping An stake to a Thai group that lacked any major banking credentials.
As to the second question of how foreign lenders will change their China approach, many are probably keeping close watch on a year-old joint venture between Pudong Development Bank (Shanghai: 600000) and mid-sized US lender Silicon Valley Bank to see if that arrangement works. If it does, perhaps we could see more international lenders, both large and mid-sized, start returning to China in the next five years to set up similar joint ventures in a second attempt to tap the large but also difficult market.
Bottom line: HSBC's likely sale of its stake in Bank of Shanghai later this year is part of an ongoing divorce as global lenders rethink their China strategy.
To read more commentaries from Doug Young, visit youngchinabiz.com