HSBC announced its intention to buy out the remaining 36.5% of Hong Kong's Hang Seng Bank that it doesn't already own, offering HK$155 per share, which represents a 30.3% premium over Wednesday's closing price. This deal values Hang Seng Bank at $37 billion, with HSBC's portion of the acquisition costing $13.6 billion. The move, intended to take Hang Seng private, led to a 26% jump in Hang Seng shares, while HSBC's shares fell 6% after the announcement. HSBC's CEO, Georges Elhedery, stated that the acquisition was not a bailout despite Hang Seng's recent struggles with bad loans, and he believes delisting will allow for better integration and value creation for HSBC shareholders.
The acquisition will impact HSBC's Common Equity Tier 1 (CET1) ratio by approximately 125 basis points from its 14.6% level in June. To rebuild capital for this deal, HSBC will pause its share buybacks for about three quarters. Citi analysts, while acknowledging the strategic rationale, expressed curiosity about the timing and price of the acquisition. The offer price is final, and HSBC does not reserve the right to revise it.
Hang Seng Bank has faced a significant increase in impaired loans, which reached 6.7% of its gross loans by June 2025, a sharp rise from 2.8% at the end of 2023. These escalating bad loans, totaling $7 billion (HK$54.8 billion), are primarily attributed to its substantial exposure to the struggling Hong Kong and mainland Chinese property markets. HSBC had reportedly begun tightening risk management at Hang Seng in early 2024 due to concerns about the property sector crisis. However, Elhedery maintains a "constructive" view on the sector's long-term outlook despite short-term challenges.
This acquisition marks a significant bet on Hong Kong for HSBC and is considered the largest in the region in over a decade. Morningstar's senior equity analyst Michael Makdad noted that parent-subsidiary double listings often present governance issues, making the full acquisition a positive development. Elhedery indicated that with 100% ownership, HSBC and Hang Seng would align product manufacturing and international networks, suggesting opportunities for cost synergies and more efficient operations.
Elhedery also emphasized HSBC's financial strength and its appetite for further acquisitions, particularly in its priority areas of growth: Hong Kong, the United Kingdom, transaction banking, and wealth management. This deal stands in contrast to a series of divestments HSBC has undertaken under Elhedery's leadership, simplifying the bank's structure, and signals a strategic shift towards targeted investments in key regions.
