HSBC proposes privatisation of Hang Seng Bank

Core Viewpoint - HSBC plans to privatize Hang Seng Bank in a deal valued at HK$106.1 billion ($13.63 billion) due to concerns over its performance and exposure to struggling property markets in Hong Kong and mainland China [1] Group 1: Transaction Details - HSBC will offer HK$155 per share for the 36.5% of shares it does not already own, valuing Hang Seng Bank at $37 billion [1] - The offer represents a 30.3% premium over Hang Seng Bank's closing price of HK$119 prior to the announcement [2] - This transaction is the largest banking acquisition in Hong Kong in over a decade, surpassing OCBC's acquisition of Wing Hang Bank in 2014 for $5.3 billion [3] Group 2: Strategic Implications - HSBC's CEO stated that this move is a medium to long-term investment in a leading local bank with strong financial standing and good liquidity ratios [4] - The privatization reflects HSBC's confidence in Hong Kong's economy and its future as a global financial center [6] - HSBC plans to pause share buybacks for about three quarters to accumulate the necessary capital for the acquisition [8] Group 3: Market Reactions - Hang Seng Bank shares initially surged to HK$168 before settling at HK$150.3, reflecting a 26.3% increase but still below the offer price [2] - HSBC's stock fell by 6.2% to HK$103.7, contrasting with a minor decline of 0.15% in the benchmark Hang Seng Index [2] Group 4: Financial Health and Risks - Hang Seng Bank has seen rising bad loans, with impaired loans reaching 6.7% of gross loans as of June 2025, up from 2.8% at the end of 2023 [11] - HSBC anticipates a negative impact of about 125 basis points on its common equity tier 1 (CET1) ratio, which was 14.6% at the end of June [13] - The CEO emphasized that the privatization is not a bailout, despite concerns over Hang Seng Bank's loan book [12]