HSBC Holdings PLC's $10.1 billion sale of its Canada unit will see Asia account for closer to half of its business as it responds to investor pressure to intensify its focus on the region, S&P Global Market Intelligence shows.
The sale of its Canadian business to Royal Bank of Canada increases HSBC's Asian business to 46.6% of total assets from about 45% as of data from the end of June, the latest period for which it is available. The bank's North American business falls to 8.9% of total assets from 12.06%, the data shows.
Asia made up the largest share of HSBC's operating income in the third quarter at more than 56%, Market Intelligence data shows. Europe comprised 19%, while North America made up 12%.
HSBC's sale of its Canadian business follows its exit from several other markets in recent years. It sold its U.S. retail banking operation in 2021. It also exited France last year and is in the process of leaving Greece and New Zealand. HSBC's sale of its French retail unit to private equity firm Cerberus for €1 saw the bank take a $3 billion hit on the loss-making business.
The London-based bank's retreat from Western markets comes as HSBC's largest shareholder, Ping An Insurance (Group) Co. of China Ltd., has put pressure on the bank to split its Asian business from the rest of the group in order to unlock its growth potential and improve profitability.
HSBC's plan to distribute a portion of the proceeds of the sale to shareholders through a one-off dividend, a share buyback or a combination of both should help address some of the recent disquiet among shareholders. Hong Kong-based retail investors, who make up a considerable portion of HSBC's shareholders and rely on dividends to support their income, were angered when the bank suspended dividend payments in 2020 during the COVID-19 pandemic at the behest of the Bank of England. Ping An received backing from many of these investors when it demanded HSBC be split in two.
Shareholders can expect to receive distributions related to the Canada transaction, which will bring a pretax gain of $5.7 billion, from early 2024 onwards, HSBC said.
"The capital uplift generated by the transaction will be welcomed by the market, especially if it is returned to shareholders," Benjamin Toms, bank equity analyst at RBC Capital Markets told S&P Global Market Intelligence.
The sale will boost HSBC's fully loaded common equity Tier 1 capital ratio — a measure of a bank's ability to withstand financial stress — by 130 basis points, the bank said. This would take the lender's fully loaded CET1 ratio to 14.64%, according to Market Intelligence data, above its target range of 14% to 14.5%.
The bank's fully loaded CET1 ratio had fallen below its target range at the end the second quarter to 13.55%, before falling further at the end of the third quarter to 13.34%, Market Intelligence data shows. Investors generally demand a fully loaded CET1 ratio of above 12% from large banks, with expectations often increasing during times of economic uncertainty.
HSBC's share price rose sharply after the deal was announced Nov. 29, before falling back to trade at about 2% higher than before the announcement as of Dec. 6, Market Intelligence data shows.
* Access capital adequacy metrics for HSBC on CapIQPro.
* Access the company profile of Ping An Insurance on CapIQPro.
