Following HSBC's high-profile sale of its entire holding in Ping An, China's No 2 life insurer, Europe's biggest bank is expected to dump more non-core assets it holds on the mainland this year to raise capital.
Many analysts say HSBC's stake in Bank of Shanghai, a major second-tier lender, may be the next big asset to go on the block in a sale they say could bring in about US$800 million.
HSBC's disposals come as it seeks to speed up improvements in cost efficiency and reviews assets through five "filters" proposed by chief executive Stuart Gulliver. The filters are tests of the performance of those assets in terms of their connectivity across different markets and businesses, their efficiency, their profitability, economic developments in their home markets and their liquidity.
Gulliver added a sixth test - global risk - after the bank was fingered in a money laundering probe in the United States last year, suffering reputational damage and having to pay multibillion-dollar fines.
Ping An, a long-time strategic investment for HSBC, was clearly no longer sufficiently strategic to keep late last year when the bank said it would sell its 15.57 per cent stake in the insurer to Thai agribusiness conglomerate Charoen Pokphand Group - controlled by Thailand's richest man, Dhanin Chearavanont - for US$2.6 billion.
Analysts interpreted that sale as a clear signal that HSBC's board had reached a decision to dump more mainland assets to raise capital for expansion in the lender's European home market.
HSBC has two major equity investments on the mainland - an 18.7 per cent stake in Shanghai-headquartered Bank of Communications and an 8 per cent stake in Bank of Shanghai.
Bank of Shanghai is expected to raise US$2 billion through a dual listing in Hong Kong and Shanghai that may see it boost its equity base by issuing new shares to the value of 20 to 30 per cent of its existing stock, said a Hong Kong-based analyst who asked not to be named.
The projected market capitalisation of Bank of Shanghai is expected to be about US$10 billion, which would value HSBC's stake at about US$800 million.
"The listing plan by Bank of Shanghai may speed up a decision by HSBC to find a buyer for its stake," the analyst said, since it is common practice to impose a lock-up period of six to 12 months on existing shareholders when a company goes public.
"The window for HSBC to exit is pretty narrow if Bank of Shanghai gets its listing before June," the Hong Kong analyst added.
Bank of Shanghai reported assets of 655.4 billion yuan (HK$821.5 billion) at the end of 2011. Its outstanding loans amounted to 334.1 billion yuan and its deposits stood at 466.3 billion yuan. Its capital adequacy ratio was 11.72 per cent.
"We remain in long-term co-operation with HSBC," Bocom chairman Hu Huaibang said at a press conference in Hong Kong last month.
Ng Siu-on, the head of corporates at HSBC's commercial banking business in Hong Kong, was appointed as an HSBC-Bocom strategic co-operation consultant and joined Bocom's senior management team last week. The banks signed a memorandum of understanding on cross-border yuan business co-operation.
When John Bond, who spearheaded HSBC's investment in Bocom, was chief executive at the bank, he revealed an ambition for HSBC to own a far bigger, and possibly controlling, stake in Bocom someday.
Analysts now doubt HSBC will raise its holding in Bocom and even question whether it has the financial firepower to do so. But they say it is unlikely to quit its existing stake.
"I don't think there is any possibility that HSBC will give up Bocom," said an analyst in Shanghai. "If that happens, HSBC's China story will be over."
But many analysts expect that HSBC may well drop another of its mainland assets - HSBC Life Insurance, a 50:50 joint venture with National Trust that recently laid off about 130 sales staff.
HSBC also said after a review of its life insurance business on the mainland that it planned to focus on its bancassurance products in order to better serve its bank customers and those of its partners in China.