Shares in Europe's biggest bank collapsed by 6%. Why are investors not happy about the HSBC deal?
The Bank will buy back its Hong Kong unit at a 30% premium to the market price
Shares of HSBC, Europe' s largest bank by assets, fell by 7% in London. Investors reacted negatively to the bank's proposal to privatize its Hong Kong subsidiary Hang Seng Bank, writes CNBC. Hang Seng shares, on the contrary, rose sharply - by almost 26%.
Details
HSBC has submitted a proposal to shareholders to privatize Hong Kong's Hang Seng Bank, which would see HSBC Asia Pacific receive Hang Seng shares held by minority shareholders, followed by the delisting of Hang Seng from the Hong Kong Stock Exchange. HSBC now holds 63% of the subsidiary's capital," CNBC added.
The deal values Hang Seng at more than HK$290 billion (more than $37 billion). Under the terms, Hang Seng's shares will be redeemed in exchange for HK$155 per paper - that's about 33% above the average rate over the last 30 days. Given HSBC's current stake in Hang Seng Bank, the deal could be valued at around HK$106 billion ($13.6 billion), CNBC calculated.
The fall in HSBC shares put pressure on the entire European banking sector, with the Stoxx 600 Optimized Banks sector index down about 0.7% in Thursday trading.
What are the pros and cons of the deal
Some analysts questioned the premium that HSBC was willing to offer for Hang Seng Bank shares.
"While the strategic logic of the deal is clear and it appears to be a prudent use of capital, investors are likely to wonder why now and at this price," wrote Citi analyst Andrew Coombs. His opinion is quoted by Reuters.
The premium of about 30% is added to the already established 24% rise in Hang Seng shares over the past 12 months, Citi analysts said in a MarketWatch note. Barclays analysts called the deal "a major bet on Hong Kong," the publication noted.
HSBC sees Hong Kong as its "home" market alongside the UK, while it is under pressure amid growing tensions between China and Western countries, the Financial Times says. HSBC's largest shareholder, Chinese financial conglomerate Ping An, has launched a campaign calling for HSBC's Asian and Western businesses to be split as early as 2022, the newspaper notes.
Despite investor pessimism, Morningstar analyst saw the deal as a positive step. "The dual listing of a parent and subsidiary inherently creates challenges from a corporate governance perspective, so this is a positive and long overdue step," said Morningstar senior analyst Michael McDad.
This article was AI-translated and verified by a human editor
