HSBC Holdings Plc, Europe’s largest bank, agreed to sell its 8 percent stake in Bank of Shanghai Co. to Banco Santander SA as it exits minority investments to boost profitability.
HSBC didn’t disclose a price for the shareholding valued at about $468 million on its balance sheet, according to a statement from the London-based bank yesterday. The lender paid about $63 million in 2001 for the stake.
Chief Executive Officer Stuart Gulliver has closed or sold at least 54 businesses since taking the top job in 2011 as he cuts costs and focuses on places where the firm is most profitable. In China, HSBC also owns 19 percent of Bank of Communications Co., which had a 2012 profit that was almost eight times Bank of Shanghai’s earnings.
“The stake in Bank of Shanghai doesn’t seem to bring much synergy to HSBC’s China business,” Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp., said by phone today. “It’s understandable for HSBC to reallocate the resources to other Chinese lenders with more potential.”
HSBC is the biggest foreign bank in China by assets and branch network. The lender, which operates 150 outlets on the mainland, boosted its China profit by about 12 percent last year to 3.8 billion yuan ($626 million), according to its website.
The U.K. lender will continue expanding its business there through Shanghai-based Bank of Communications, the nation’s fifth-largest bank, Peter Wong, HSBC’s Asia Pacific CEO, said in the statement.
“With such a large and important market as China, our ability to focus on core businesses becomes much more vital,” Wong said. The bank has 55 million customers and 6,600 offices worldwide, according to its website.
HSBC shares in Hong Kong fell 0.8 percent to HK$83.25 as of the city’s noon trading break, narrowing this year’s gain to 2.4 percent. The Hang Seng Index lost 1.2 percent today.
Bank of Shanghai, which has 294 outlets, had a profit of 7.5 billion yuan in 2012, according to its earnings statement. That compared with the 58.4 billion yuan earned by Bank of Communications, which is known as BoCom.
“We don’t think that HSBC’s disposals in Bank of Shanghai would have any implication on HSBC’s investment in BoCom,” Grace Wu, a Hong Kong-based analyst at Daiwa Capital Markets Hong Kong Ltd., said by phone today. “HSBC has a much closer tie-up with BoCom because they have a credit-card joint venture and other strategic cooperation.”
Santander’s stake purchase comes before a possible initial public offering by Bank of Shanghai. The lender is among about 180 firms that have applied to the China Securities Regulatory Commission for a listing on the Shanghai Stock Exchange, according to a Nov. 21 posting on the CSRC’s website.
The bank had planned to seek about $2 billion from a Hong Kong IPO, two people with knowledge of the matter said in April. Bank of Shanghai’s shareholders approved a plan to extend the expiration date of its domestic and Hong Kong listing plans to May 28, 2014, the lender said the same month.
Under the terms of the accord, Santander and Bank of Shanghai will jointly develop a wholesale banking business, the Santander, Spain-based bank said in a separate statement. The acquisition and the costs of providing “strategic and technical cooperation” to Bank of Shanghai will total about 470 million euros ($647 million), Santander said.
The purchase increases Santander’s business in China after it received regulatory clearance in May to buy 20 percent of Bank of Beijing Co.’s consumer finance unit. Santander also signed an agreement two years ago with Chinese automaker Anhui Jianghuai Automobile Co. to create an auto-financing joint venture.
Yesterday’s acquisition will reduce Santander’s capital by one basis point, the bank said.
Global banks from HSBC to Bank of America Corp. and Goldman Sachs Group Inc. have raised at least $14 billion from divesting shares in Chinese financial institutions since the start of 2012. The U.K. lender raised $9.4 billion from selling shares of Ping An Insurance (Group) Co. this year.
New rules set by the Basel Committee on Banking Supervision made minority holdings less appealing as they require capital deductions for such investments in other financial institutions.
— With assistance by Jun Luo, and Stephanie Tong