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<Research>JPM: HSBC HOLDINGS' Privatization Plan of HANG SENG BANK: ST Pain, LT Gain
Recommend
20
Positive
42
Negative
38
JP Morgan published a report on HSBC HOLDINGS (00005.HK), which announced a proposal to take HANG SENG BANK (00011.HK) private, with a cash consideration of HKD106 billion (approximately USD13.6 billion), or HKD155 per share, to acquire minority shareholders' stakes. This transaction will cause HSBC HOLDINGS’ CET1 ratio to shrink by 125 bps.

To maintain the ratio within the target range, HSBC HOLDINGS will suspend share buybacks for three quarters following the announcement. JP Morgan measured that this will scale down the buyback by about USD7 billion, with the CET1 ratio expected to be 14% by 2Q26.

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The broker believed the transaction will bring short-term pain but have long-term gain for HSBC HOLDINGS. Even without considering revenue synergies or cost optimization, due to the elimination of HANG SENG BANK's minority interests, JP Morgan estimated HSBC HOLDINGS’ EPS and DPS in 2027 could be 1.5% and 3.1% higher than JP Morgan's base case forecast. Notably, HSBC HOLDINGS disclosed its Hong Kong business's ROTE for 2024 as 38%, while HANG SENG BANK reported an ROE of only 11% during the same period.

In the short term, JP Morgan expected HSBC HOLDINGS’ share price to experience a mid-single-digit ppts of retreat; if the market overreacts, JP Morgan will view it as an opportunity to accumulate. JP Morgan gave HSBC HOLDINGS an Overweight rating with a target price of HKD122.
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