HSBC: Long China, Short U.S.

March 6, 2009

HSBC/HSBC Holdings, Europe’s biggest bank, says it hopes to boost its stake in China’s Bank of Communications. On the face of it, this should raise no eyebrows. HSBC has been in China in one way or another since the height of the British Empire. This is its area of expertise, and it’s not surprising the bank would seek to lead the charge into China, even in a period of global financial market meltdown and economic retreat.

What is more interesting is the rationale being employed by HSBC executives. “Our U.S. business has contracted and there is room for us to seek opportunities in the Asia-Pacific region,” HSBC’s executive director and chairman for Asia-Pacific, Vincent Cheng, told reporters. “We will increase our stake in BoCom if opportunities arise.”

Traditionally conservative HSBC was badly burned in the U.S. mortgage party. The bank said on Monday it would close most of its U.S. consumer finance business as it seeks to put an end to its troubled 2003 purchase of Household by writing off most of the value of the subprime business. “With the benefit of hindsight, this is an acquisition we wish we had not undertaken,” HSBC Chairman Stephen Green said. HSBC bought Household for $14.8 billion — its biggest acquisition ever and one noted for its high-risk exposure to subprime lending.

HSBC said it would take a $10.6 billion goodwill charge for its U.S. business, leaving its main focus in the world’s biggest economy on corporate and commercial business, private and premier banking, and credit cards.

Now it wants to up its bet on China by raising its stake in BoCom to 20 percent, the maximum permitted by the government. Its current 19 percent chunk is worth $6.7 billion. BoCom says it would be willing to have HSBC take up to 40 percent by August 2012 if the government approves.

Deals of the Day:

* Belgium and French bank BNP Paribas wrestled over revised terms for the break-up of stricken financial group Fortis on Friday, the deadline for a deal to be struck.

* Citigroup plans to sell its 26 percent stake in Japanese online broker Monex Group Inc as part of the struggling U.S. bank’s efforts to raise cash, the Yomiuri newspaper reported.

* Spain’s largest bank, Santander, is among potential bidders for the Polish banking arm of the troubled insurer American International Group, a Polish daily reported, citing an unnamed source.

* Fraud-hit Satyam Computer Services won regulatory approval to sell a majority stake in itself, but suitors said there was still uncertainty about the Indian company’s accounts and liabilities.

* Entertainment One Ltd said Marwyn Neptune Fund LP intends to raise its stake in the British audio and visual media group to 48.5 percent from 27.7 percent via a partial cash offer at 12.5 pence per share.

* Africa’s biggest bank by assets, Standard Bank, bought a third of Russia’s No. 2 investment bank, Troika Diago, in an asset swap and cash deal.

* Private equity firm 3i Group Plc has put its majority stake in Franklin Offshore International up for sale, sources said, hoping to fetch about $400 million for the oil services group.

* French smart card provider Gemalto will buy NXP Semiconductors’ wireless chip services business, which develops and markets software for chip technology MIFARE, the two companies said.

(PHOTO: A man enters a branch of a HSBC bank in the City of London, March 2, 2009.  REUTERS/Andrew Winning)

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