Wednesday, December 7

HSBC Looks to Deals and Disposals as Part of Battle Against Breakup


HSBC Holdings Plc has spent the past six months fighting calls from its largest shareholder to split up. That isn’t stopping the bank ramping up its own dealmaking program.

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(Bloomberg) — HSBC Holdings Plc has spent the past six months fighting calls from its largest shareholder to split up. That isn’t stopping the bank ramping up its own dealmaking program.

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The London-based lender expects to increase the amount of acquisitions it makes in the coming years, a person familiar with the company’s thinking said. Further disposals are also expected but will likely be matched by purchases, the person said, declining to be identified discussing private information.

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Such a shift underlines the lender’s changing stance to dealmaking. Since the global financial crisis, the bank has made few acquisitions while exiting more than 20 countries and selling dozens of businesses, even some that were previously seen as core to its operations.

Such disposals won’t stop. Last week, HSBC said it was examining a sale of its Canadian business that could be worth about $10 billion, according to Bloomberg Intelligence. The decision to look at selling up in Canada came after several expressions of interest in the business, the person said.

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It comes after last year’s disposal of its French and US retail operations. Over the summer, Bloomberg reported on plans for an initial public offering of HSBC’s Indonesian operations and the possible sale of its Omani and Russian units.

Chief Executive Officer Noel Quinn hinted at further disposals last month, saying that more transactions were “in flow.”

“There are a few markets where I deem to be — or businesses where I deem them not to be wholly strategic and not delivering acceptable returns,” Quinn told a Bank of America Corp. conference.

Breakup Campaign

Ping An Insurance Group Co.’s push to break up HSBC has focused on the value of the bank’s sweeping global network. To the Chinese insurer, HSBC’s worldwide operations are a millstone around the neck of its profitable Asian business, which it would like to be spun out.

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“If they are now selling successful parts of the franchise, such as Canada, then it does suggest all this ‘value of the global franchise’ is more theory than reality,” said Edward Firth, a banks analyst at Keefe Bruyette & Woods. ” I suspect that Ping An are making progress and that any part of the franchise outside of Asia is now available for the right price.”

But these sales can also be viewed as part of HSBC’s long-running efforts to reposition itself. And in the past couple of years, HSBC has announced the purchase of an Indian asset manager, a Singaporean insurance business, the remaining 50% in HSBC Life Insurance Company in China and an increased stake in its Chinese securities joint venture.

This strategy fits with HSBC’s Asia pivot as it shifts billions of dollars of capital from west to east, predominantly to China and India, to capitalize on the region’s rising economies.

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None of these deals fundamentally changes the size and scope of the business, but taken together show how the lender is regaining an appetite for acquisitions largely lost in the aftermath of the 2008 crisis. Last summer, the bank hired Will McLane as head of global corporate development to rebuild its acquisition capabilities.

Still, executives have discouraged investors from expecting a return to mega-deals such as HSBC’s ill-fated acquisition of Household International in 2003, the subprime lender that ended up costing the company billions of dollars in writedowns.

“I’m acutely aware that about 20 years ago, we did a bunch of things that probably didn’t create too much value for shareholders,” said Chief Financial Officer Ewen Stevenson, speaking at a Barclays Plc financial services conference last month.” I don’t think we’re actively looking at anything large at the moment.”

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