"Golden Opportunity" or "Deep Pit"? HSBC's Investment Divide Widens

TradingKey - On October 9, HSBC Holdings announced plans to privatize Hang Seng Bank at a premium of over 30%, sparking widespread market attention on a potential wave of privatizations in Hong Kong. On the announcement day, Hang Seng Bank’s stock surged as much as 41%, hitting an all-time high, and closed up more than 25%. In contrast, HSBC’s shares came under short-term pressure, falling 5.97% on the day.

Yesterday, amid Trump’s comments about imposing new tariffs on China that triggered a sharp sell-off in U.S. stocks, HSBC’s U.S.-listed shares fell another 2%.

Once completed, the transaction will result in Hang Seng Bank being delisted and becoming a wholly owned subsidiary of HSBC. The deal is considered one of the largest mergers and acquisitions in Hong Kong in recent years. It is currently awaiting approval from regulators and shareholders, with completion expected in the first half of 2026.

Notably, yesterday HSBC issued a separate announcement stating that it repurchased 2.58 million shares for £26.11 million and 2.0224 million shares for HK$209 million on October 9, demonstrating continued confidence in its own prospects. This buyback has provided a strong vote of confidence to the market.

The 30% premium stands out compared to historical deals: OCBC’s acquisition of Wing Lung Bank in 2014 carried just a 1.6% premium, while China Merchants Bank’s takeover of Wing Lung in 2008 had a premium of around 6%. A high premium typically reflects strong strategic necessity — suggesting HSBC views this integration as critical.

Market analysts believe the primary motivation behind HSBC’s move is to streamline management of Hang Seng. Hang Seng has been weighed down by bad loans tied to the property sector. Its non-performing loan (NPL) ratio rose to 6.69% by the end of June 2025, up 0.57 percentage points from 6.12% at the end of 2024 — the highest level in a decade.

Although HSBC already holds a controlling stake in Hang Seng, major decisions require consensus among other shareholders, limiting its ability to act decisively. Full ownership would significantly enhance operational and strategic agility. The 30% premium underscores HSBC’s high valuation of this strategic consolidation.

In a research report, CITIC Construction Investment maintained its “Buy” rating on HSBC (Hong Kong) and named it their top pick in the banking sector, setting a target price of HK$120. The report highlighted HSBC’s extensive presence in key global regions, positioning it as a core beneficiary of international supply chain restructuring, as well as its strong exposure to Asia’s affluent retail clients seeking global asset diversification.