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HSBC's Biggest Bid in Years Could Get Even Bigger

Nisha Gopalan

(Bloomberg Opinion) -- Since getting burned in the financial crisis, HSBC Holdings Plc has been in sell rather than buy mode. But now that it’s out shopping, the bank is looking to splurge. 

HSBC is eyeing the Asian assets of struggling British insurer Aviva Plc, which could be worth between $3 billion and $4 billion, Bloomberg reporters Dinesh Nair, Manuel Baigorri and Stefania Spezzati wrote Thursday. That would make it one of the bank’s largest purchases since it bought subprime lender Household International for $15.5 billion in 2003.

The London-based lender should be prepared to pay even more: Aviva is sure to have many suitors. While the company had a difficult run in Asia, a buyer with more regional presence could better navigate the regulatory hurdles of a fractured market. The bulk of Aviva’s Asian assets are in Singapore, where a large pool of affluent residents has helped gross written premiums rise 13% per year industry-wide, according to Bain & Co. Aviva has 885,000 customers in the Southeast Asian country and was the sixth-largest insurer in Singapore last year – ahead of HSBC. The company accounted for 4.2% of the city-state’s insurance assets in 2018, says Bloomberg Intelligence analyst Steven Lam.

A rare, large asset like Aviva is bound to pique the interest of FWD Group Ltd., which Hong Kong billionaire Richard Li built from the ashes of Dutch insurer ING Groep NV’s Asian businesses. FWD, widely believed to be preparing for an initial public offering, has been busy buying assets: Late last year, it snapped up an 80% stake in Commonwealth Bank of Australia’s Indonesian life insurance arm for A$426 million ($302 million). 

The Japanese, meanwhile, have been avid acquirers of Southeast Asian insurance assets for years, as low growth and negative bond yields at home crimp the savings of its aging population. Just this week, Japan's Taiyo Life Insurance Co. said it will buy 35% of Myanmar's Capital Life Insurance Ltd. Tokio Marine Holdings Inc. bought the Thai and Indonesian businesses of Sydney-based Insurance Australia Group Ltd. for about A$525 million ($355 million) last year, and has been open about its Southeast Asian ambitions.

It makes sense that HSBC is eager to jump in: Its chairman, Mark Tucker, is an insurance supremo, having run AIA Group Ltd. and Prudential Plc previously. The recent protests in Hong Kong are pressuring the bank, which gets more than half of its pretax profit from the former British colony, to diversify, as other firms with big bases in the city have done. On Thursday, HSBC broke its silence and called for a peaceful resolution to the tensions in a newspaper ad.

With the midpoint of the $3 billion to $4 billion price range amounting to 22 times Aviva's 2018 adjusted operating profit, these jewels aren’t coming cheap. That’s the same level at which AIA, Asia’s biggest insurer, trades. Bidders should prepare for a price war.

To contact the author of this story: Nisha Gopalan at ngopalan3@bloomberg.net

To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

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