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Sale of Ping An stake won't curb HSBC's grand China ambitions
By Fitch Ratings |
00:00 UTC+8 November 22, 2012
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A potential sale of HSBC's stake in Ping An Insurance is unlikely to reduce the group's long-term focus and exposure to China. We remain concerned about the build-up of risk from the bank's expansion in higher-risk markets, including China.
The strategic importance of HSBC's stake in Ping An may have diminished. It may instead be more capital efficient and profitable for the group to pursue a bancassurance model in China through distribution agreements. This would be consistent with the group's strategy to reduce fragmentation that saw HSBC sell various general insurance businesses and enter into bancassurance agreements with leading insurance companies in 2012.
Enhancing the control environment for some of HSBC's Chinese mainland exposures could be another benefit if the Ping An stake is sold. We believe the group would have greater control over the risks it undertakes there if it grows organically rather than increase its exposure through minority stakes.
It still has significant minority stakes in other Chinese financial institutions, in particular Bank of Communications, but also Bank of Shanghai, Industrial Bank and Yantai Bank. China remains core to the group's strategy and a key driver for earnings growth. HSBC's Chinese mainland exposure more than doubled since 2010 to about US$115 billion or 4 percent of assets at end-June 2012 according to our estimates.
Positive impact
A disposal would have a positive impact on the capital ratios of HSBC and in particular its Hong Kong subsidiary. The Ping An stake is held 50 percent each by The Hongkong and Shanghai Banking Corporation Limited and HSBC Insurance Holdings Limited. We estimate that HSBC's consolidated total capital ratio would be at least 50 basis points higher if the stake is sold at just the carrying value.
Shares in Ping An are trading well above the US$6.4 billion carrying value of the investment at end-2011. Potential gains on the sale above the carrying value would further benefit HSBC's core equity Tier 1 ratio, which was around 9.6 percent at end-September 2012 if Basel III was already implemented in full without taking any mitigating actions.
The benefit to the Hong Kong subsidiary's regulatory capital ratios would be even more pronounced, due to the fact that the investment, which cost US$1 billion is deducted 50 percent from core equity and 50 percent from supplementary capital. HSBC confirmed on Monday that it is in discussions to sell its 15.6 percent stake in Ping An Insurance, which is the second largest insurer in China.
The article first appeared on the Fitch Wire credit market commentary page. All opinions are those of Fitch Ratings.
The strategic importance of HSBC's stake in Ping An may have diminished. It may instead be more capital efficient and profitable for the group to pursue a bancassurance model in China through distribution agreements. This would be consistent with the group's strategy to reduce fragmentation that saw HSBC sell various general insurance businesses and enter into bancassurance agreements with leading insurance companies in 2012.
Enhancing the control environment for some of HSBC's Chinese mainland exposures could be another benefit if the Ping An stake is sold. We believe the group would have greater control over the risks it undertakes there if it grows organically rather than increase its exposure through minority stakes.
It still has significant minority stakes in other Chinese financial institutions, in particular Bank of Communications, but also Bank of Shanghai, Industrial Bank and Yantai Bank. China remains core to the group's strategy and a key driver for earnings growth. HSBC's Chinese mainland exposure more than doubled since 2010 to about US$115 billion or 4 percent of assets at end-June 2012 according to our estimates.
Positive impact
A disposal would have a positive impact on the capital ratios of HSBC and in particular its Hong Kong subsidiary. The Ping An stake is held 50 percent each by The Hongkong and Shanghai Banking Corporation Limited and HSBC Insurance Holdings Limited. We estimate that HSBC's consolidated total capital ratio would be at least 50 basis points higher if the stake is sold at just the carrying value.
Shares in Ping An are trading well above the US$6.4 billion carrying value of the investment at end-2011. Potential gains on the sale above the carrying value would further benefit HSBC's core equity Tier 1 ratio, which was around 9.6 percent at end-September 2012 if Basel III was already implemented in full without taking any mitigating actions.
The benefit to the Hong Kong subsidiary's regulatory capital ratios would be even more pronounced, due to the fact that the investment, which cost US$1 billion is deducted 50 percent from core equity and 50 percent from supplementary capital. HSBC confirmed on Monday that it is in discussions to sell its 15.6 percent stake in Ping An Insurance, which is the second largest insurer in China.
The article first appeared on the Fitch Wire credit market commentary page. All opinions are those of Fitch Ratings.
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