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<Research>Citi: Privatization of HANG SENG BANK by HSBC HOLDINGS Is Strategic Priority, Reasonable as Buybacks No Longer as Accretive to EPS
HSBC HOLDINGS (00005.HK) announced yesterday its plan to acquire a 37% minority stake in HANG SENG BANK (00011.HK), Citi Research issued a research report saying. The price represe...
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<Research>Citi: Privatization of HANG SENG BANK by HSBC HOLDINGS Is Strategic Priority, Reasonable as Buybacks No Longer as Accretive to EPS
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HSBC HOLDINGS (00005.HK)  +1.900 (+1.593%)    Short selling $172.65M; Ratio 12.638%   announced yesterday its plan to acquire a 37% minority stake in HANG SENG BANK (00011.HK)  +0.100 (+0.065%)    Short selling $6.16M; Ratio 8.658%   , Citi Research issued a research report saying. The price represents a 30% premium and a PB ratio of 1.8x.

The broker estimated that the acquisition will impact HSBC HOLDINGS' capital by 125 bps, with HSBC HOLDINGS planning to fund it by suspending share buybacks for 3 quarters.

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Citi Research calculated the overall impact on EPS to be slightly accretive/ dilutive, and kept its target price for London-listed HSBC Holdings plc (HSBA.L) at GBP11.2, with rating kept at Buy.

The broker believed that, on the surface, the timing for privatization seems odd, as HANG SENG BANK's share price has risen by 24% over the past 12 months, and the acquisition premium offered by HSBC HOLDINGS was also considerable.

However, Citi Research believed that this reflects the new management's strategic priorities and HSBC HOLDINGS' own valuation considerations. After taking office, HSBC HOLDINGS CEO Georges Elhedery's primary task is to restructure HSBC HOLDINGS according to the new business framework, focusing on the two major home markets, naming Hong Kong and the UK, plus the CIB and IWPB businesses.

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Next priority was to implement the established cost-cutting plans and strategic asset divestments. The latter is already progressing steadily, and with a strong capital position, management is turning to capital deployment, which is reasonable.

With organic loan growth still relatively weak, HSBC HOLDINGS' current PB ratio is 1.5x, while the accretive effect of share buybacks on EPS is no longer as significant as before, the broker added.
(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2025-12-22 12:25.)

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