Core Viewpoint - HSBC Holdings (00005) announced plans to privatize its subsidiary Hang Seng Bank (00011) at a price of HKD 155 per share, which will impact its Common Equity Tier 1 (CET1) capital ratio [1] Group 1: Transaction Details - The privatization will result in a decrease of 125 basis points in HSBC's CET1 ratio, prompting the company to suspend share buybacks for three quarters to maintain the ratio within regulatory guidelines [1] - The transaction is expected to reduce buybacks by approximately USD 7 billion [1] Group 2: Financial Projections - JPMorgan estimates that the CET1 ratio will be 14% by the end of Q2 2026, indicating a long-term positive impact from the privatization [1] - Even without considering revenue synergies or cost optimization, earnings per share and dividends per share are projected to exceed baseline forecasts by 1.5% and 3.1% respectively by 2027, primarily due to the exclusion of minority interests from Hang Seng Bank [1] Group 3: Performance Metrics - HSBC reported a tangible return on equity of 38% for its Hong Kong operations in 2024, while Hang Seng Bank reported only 11% for the same period [1]

Group 1 - UBS forecasts a significant decline in Hang Seng Bank's (00011) earnings per share for the first half of this year due to compression in net interest income (NII) and an expected rise in expected credit loss (ECL) expenses [1] - The bank is currently trading at 1.3 times the one-year forward price-to-book ratio, with a target price of HKD 112 and an estimated dividend yield of 5.4% for 2025 based on the target price [1] - Hang Seng Bank is expected to announce a new share buyback plan alongside its earnings report on July 30, despite a weak profit outlook [1] Group 2 - UBS notes that the Hong Kong Interbank Offered Rate (HIBOR) has remained below 1% for a month, deviating from seasonal patterns, and predicts HIBOR will stabilize between 2% and 2.5% by year-end [2] - As a result of the low HIBOR environment, UBS has revised down its forecast for Hang Seng Bank's NII for 2025, while slightly increasing the forecast for non-interest income due to potential boosts in net fee income and trading income [2] - UBS has also slightly raised its estimate for ECL expenses for Hang Seng Bank in light of cautious views on non-performing loan (NPL) risks [2]