HSBC Holdings PLC's (LSE:HSBA) latest move in Hong Kong has left Jefferies feeling more cautious.
The bank’s plan to buy out minority shareholders in Hang Seng Bank, at a cost of $13.7bn, may make strategic sense, but it comes with an awkward side effect: three quarters without share buybacks.
For investors used to HSBC’s steady capital returns, that is a hard pause to swallow.
Jefferies has cut its rating on the shares to 'hold' from 'buy', trimming its enthusiasm just as HSBC was hitting its stride.
The analysts still think the bank can deliver a return on tangible equity of nearly 17% by 2027, but the absence of $8.5bn of buybacks over the next nine months takes, in their words, “the gloss off” the story.
Their new price target rises to 1,120p, up from 960p, but that represents only about 11% potential upside from here, not enough for a bullish call.
The Hang Seng deal is not without merit. HSBC already owns most of the Hong Kong lender, and folding it in completely should simplify the group’s structure and remove the drag from minority interests.
On Jefferies’ numbers, the purchase, which values Hang Seng at 1.75 times tangible book, is about 4% accretive to profits but neutral for earnings per share once the buyback freeze is factored in. The bank expects the transaction to close in mid-2026.
The analysts still see reasons for optimism. They forecast HSBC’s 2025 pre-tax profit 8% ahead of market consensus, thanks to stronger fee and trading income, with wealth management revenues in Hong Kong expected to grow more than 20% next year.
Total capital returns, including dividends and buybacks, are projected at $60bn through to 2027, roughly a quarter of HSBC’s current market value.
Even so, the tone is more muted. Jefferies reckons investors might warm up again if management loosens its capital target, potentially freeing funds for further buybacks.
Until then, HSBC’s growth story looks sound, just a little less shiny than before.