With the aim to focus on core businesses and improve profitability, HSBC Holdings plc (HSBC) announced a deal with Spain’s Banco Santander, S.A. (SAN) to sell its stake in a China-based bank. The company is selling 8% interest in Bank of Shanghai (BoS).
Though HSBC did not disclose the sale price, Banco Santander anticipates the cost of investment to be approximately €470 million ($645 million) and will lower Banco Santander’s capital by 1 basis point. The deal is expected to close by the first half of 2014, subject to the approval of the China Banking Regulatory Commission (:CBRC).
HSBC had acquired 8% stake in BoS in 2001 for $63 million. As of Sep 30, 2013, the interest was held as available-for-sale asset with a fair value of HK$3.6 billion ($468 million) in its balance sheet.
HSBC will continue to expand its operations in China through its 19% stake in Shanghai-based Bank of Communications Co. The company has been reducing operations in unprofitable and non-core businesses since 2011 with closure or divestiture of nearly 54 businesses.
For Banco Santander, the BoS deal will further facilitate expansion in China. In May 2013, it received approval from the CBRC to purchase 20% stake in Bank of Beijing’s consumer finance subsidiary. Earlier in March, it entered into a joint venture with the Chinese car manufacturer, Anhui Jianghuai Automobile, to form Fortune Auto Finance.
Over the last few years, several major global banks have divested their stake in Chinese banks to raise additional capital, meet stringent capital regulations or reduce volatility in earnings. Hence, HSBC joined the bandwagon comprising Bank of America Corporation (BAC), Citigroup Inc., The Goldman Sachs Group Inc. (GS), Royal Bank of Scotland Group plc and UBS AG in lowering holdings in China.
HSBC currently carries a Zacks Rank #4 (Sell).