HSBC Holdings PLC (LSE:HSBA) shares weres the biggest fallers on the FTSE 100 on Thursday after it proposed acquiring the rest of Hong Kong-listed Hang Seng Bank that it does not already own.
The deal is expected to be earnings accretive for HSBC, although it will have an estimated day-one CET1 capital impact of 125 basis points, paid for by pausing share buybacks for three quarters.
Hang Seng will be taken under the wing of its subsidiary HSBC Asia Pacific, which currently owns a 63.34% stake, via a scheme of arrangement at a price of HK$119, a 41.6% premium to the median analyst target price of HK$109.5.
Under the terms of the proposal, scheme shareholders will receive HK$155 (£14.89) in cash per share, subject to adjustments for any dividends declared prior to the scheme’s effective date, except for the 2025 third interim dividend, which will be paid separately.
If implemented, Hang Seng Bank will become a wholly-owned subsidiary of HSBC Holdings, which said Hang Seng Bank will continue to operate with its own governance, brand, and customer proposition.
HSBC said: “We see Hang Seng Bank's heritage, brand and distinct culture as a competitive advantage.”
It added that it intends to “grow in Hong Kong by strengthening the banking presence of both HSBC Asia Pacific and Hang Seng Bank.”
HSBC Asia Pacific plans to fund the acquisition using internal resources.
The proposed deal remains subject to a shareholder vote.
Shares in HSBC fell 6% to just under 1,000p on Thursday morning trading, having climbed over 36% since the start of the year.
Analysts at ii noted that the shares were likely to have fallen as share buybacks "have been a big part of investors’ rationale behind holding shares in HSBC after the bank paid out $11 billion to shareholders last year".
There might be other factors that worry shareholders too, they noted, with Hang Seng having been caught up in China’s property crisis, pushing up its bad debts, at a time when HSBC boss Georges Elhedery has been carrying out a major global restructuring since he started just over a year ago, cutting costs, pulling away from investment banking.
While Elhedery's strategy pivot has centred on exiting less attractive markets, a key plank has been increasing focus on wealth management and on the Hong Kong market.
** UPDATE: Adds share price details **