08 August, 2009

Great Britain / Hong Kong Bank Mergers & Acquisitions (HSBC Holdings)

Photo: Even though HSBC is now technically a British bank, its single largest and most profitable market continues to be Hong Kong. As of February 2010, the bank's CEO office would also be re-located to Hong Kong. This is The Hongkong and Shanghai Banking Corp.'s (HSBC's Asian unit) headquarters at No. 1, Queen's Road, Hong Kong.

HSBC Holdings plc (

The Hongkong and Shanghai Banking Corporation

The Hongkong and Shanghai Banking Corporation was established by a Scotsman named Thomas Sutherland in Hong Kong in 1865. He was then working for the Peninsula and Oriental Steam Navigation Co.'s (P&O) Hong Kong office. Riding on the growing trade between Europe, India and China, The Hongkong & Shanghai blossomed from trade financing. It began operation in March 1865 in the then British Crown Colony of Hong Kong and within a month, opened a branch in Shanghai in Imperial China. Almost right from its founding, The Hongkong & Shanghai gained the privilege to issue Hong Kong's banknotes, which it still does today even after Hong Kong was returned to China in 1997.

With its well-recognized British banking expertise, The Hongkong & Shanghai soon became a principal bank in the Far East. In 1866, the bank opened a branch in Japan and acted as advisor to Japan's banking and currency policy. In 1874, the bank was appointed as the sole fiscal agent to Imperial China. During much of the early 20th century, the bank underwrote most of China's public debt issue. In 1888, the bank became the first modern bank in Thailand, and printed that country's first banknotes.

Hong Kong fell to the invading Japanese army on Christmas Day, 1941, and the bank's operations ceased. As much of Asia soon became occupided by the Japanese army, the bank shut down almost all of its branches and the head office was moved to London in 1943. During the brutal occupation, the bank's general manager and his designated successor both died in war camp in Hong Kong as prisoners of war. Following the end of World War II, the head office powers and functions quickly returned to Hong Kong in 1945.

Ironically, soon after the "liberation" of China by the Communists in 1949, all foreign banks, including The Hongkong & Shanghai, were evicted and banned from China until the 1980's, when the communist country again opened its doors to foreign tourists and investment.

In 1959, The Hongkong & Shanghai acquired the Mercantile Bank of India (a fellow British colonial bank established in 1853 in Bombay/Mumbai) as well as the British Bank of the Middle East. In 1965, following a local Hong Kong economic crisis, it bought a controlling stake in Hang Seng Bank (established in 1933). Hang Seng is Hong Kong's largest local bank and is most well known for its Hang Seng Index, the benchmark index of the Hong Kong stock exchange.

The Hongkong & Shanghai was keen to expand outside of Asia, and in 1980, bought 51% of Marine Midland Banks, Inc. of Buffalo, New York, for USD $314-million (no relation to Britain's Midland Bank up to that point). The remaining 49% of Marine Midland was eventually bought up in 1987 for USD $800-million (HKD $6.24-billion).

Then in April 1981, anxious to create a platform for its European expansion, The Hongkong & Shanghai (by then often known simply as Hongkong Bank) launched a hostile bid for The Royal Bank of Scotland (RBS) valued at GBP 498-million. RBS had just a month earlier accepted a friendly GBP 334-million offer from Standard Chartered Bank. For several months, Standard Chartered and Hongkong Bank engaged in a bidding and publicity war for RBS. However, the British Monopolies and Mergers Commission ruled that it was not in the interests of Scotland to lose control of one of its biggest banks to foreign hands. Consequently Hongkong Bank withdrew its takeover offer for The Royal Bank of Scotland. Interestingly, Standard Chartered in the end also failed to win approval for the Scottish bank. No one involved at the time would foresee that Hongkong Bank would come back between 1987 and 1992 to acquire the much bigger Midland Bank; whereas RBS itself would turn into a predator in taking over National Westminster Bank in 2000.

Midland Bank plc

Midland Bank can trace its history back to 1836, when the Birmingham and Midland Bank was founded in Birmingham. In 1891, Birmingham and Midland acquired the Central Bank of London to form the London and Midland Bank. By 1918, London City and Midland Bank was the largest bank in the world in terms of deposit. In 1923, the bank’s name was simplified to Midland Bank Ltd. During the latter half of the 20th century, Midland was one of the Big Four High Street banks in Great Britain along with Barclays, Lloyds and National Westminster.

In 1965, Midland bought Belfast-based Northern Bank, which operated both in Northern Ireland and the Irish Republic. Midland acuired revered stockbroker Samuel Montagu in 1974. Then in 1981, the bank bought a majority-stake in California's Crocker National Bank. The purchase proved to be a costly mistake as the U.S. went into a deep recession and loan losses mounted. Midland sold Crocker National to Wells Fargo & Co. in 1985.

Along with other major international banks, Midland had over-lent to the Third World in the late 1970s and early 1980s. In 1982, the bombshell fell when the Mexican government defaulted on its USD $100-billion foreign debt obligations. The Mexican debt default triggered a worldwide Third-World debt crisis. International banks suffered huge loan losses and Midland was no exception. To restore its capital ratio, Midland sold Northern Bank (in Northern Ireland and Ireland) and Clydesdale Bank (Scotland) to National Australia Bank Group in 1987.

In the same year, as Midland's share prices languished, The Hongkong and Shanghai Bank entered into a strategic agreement which saw Midland issuing shares representing a 14.9% stake to the Hong Kong bank for GBP 383-million. The 14.9% holding was then the maximum allowed for a foreign bank of a major British lender.

To get around the foreign holding limit, and also to avoid any future political complication with the return of Hong Kong's sovereignty to China in 1997, The Hongkong & Shanghai Banking Corporation registered a parent company HSBC Holdings plc in 1991 in London, and transferred all of its subsidiaries to the U.K. parent. Merely one year later, in 1992, HSBC offered to buy the 85.1% of Midland Bank that it didn't own for GBP 3.9-billion (USD $7.1-billion) in what was then one of the largest cross-border banking mergers in the world. At the time, Lloyds Bank plc attempted briefly to wrestle Midland Bank plc from HSBC, but withdrew its offer when it became apparent that the British Monopolies and Mergers Commission would likely deny a Lloyds-Midland merger.

Recent transaction(s):

  • In 1997, HSBC bought the remaining 70.1% of Argentine bank Banco Roberts that it did not already own for USD $688-million. HSBC inherited a 29.9% stake in Banco Roberts when HSBC bought Midland Bank. Midland had acquired the minority stake in Banco Roberts in 1988.
  • In 1988, HSBC bought Brazil’s Banco Bamerindus do Brasil S.A. for USD $1.0-billion. Banco Bamerindus had a network of over 1,300 branches and was based in Curitiba.
  • In 1999, HSBC bought Republic National Bank of New York for USD $9.8-billion.
  • In 2000, HSBC bought Crédit Commercial de France for USD $10.5-billion.
  • In September 2001, HSBC acquired Turkey's Demirbank for USD $350-million (GBP 248-million). Demirbank was Turkey's fifth largest private-sector bank and had 198 branches and 650,000 retail clients.
  • In 2002, HSBC bought Mexico's Grupo Financiero Bital for USD$1.13-billion (GBP 706-million). Banco Bital had more than 1,400 branches in Mexico.
  • Also in 2002, HSBC bought Turkish consumer finance provider Benkar Tuketici Finansmani ve Kart Hizmetleri and the Advantage Card business for up to USD $75-million.  Advantage Card had 1.5 million cardholders.
  • Also in 2002, HSBC bought U.S. consumer financing company Household International for USD $14.5-billion.
  • Also in 2002, HSBC bought a strategic 10% holding in China's Ping An Insurance Co. for USD $600-million.
  • In 2003, HSBC bought Lloyds TSB Group's Brazilian banking business Banco Lloyds TSB S.A.-Banco Mulitplo for USD $815-million. Banco Multiplo was merged into HSBC's Brazilian unit Banco Bamerindus.
  • Also in 2003, HSBC bought Bank of Bermuda for USD $1.3-billion.
  • In 2004, HSBC bought Italian Banca Intesa BCI's Canadian unit for CAD $114-million.
  • Also in 2004, HSBC purchased British department store Mark & Spencer's Retail Financial Services for GBP 488-million.
  • Also in 2004, HSBC acquired 19.9% of China's Bank of Communications for USD $1.75-billion.
  • In 2005, HSBC purchased another 9.91% of Ping An Insurance for HKD $8.1-billion (USD $1.04-billion), bringing HSBC's holding in Ping An to 19.9%.
  • Also in 2005, HSBC bought U.S. credit card issuer Metris Companies for USD $1.59-billion.
  • In 2006, HSBC took over Panama's Grupo Banistmo, Central America's largest bank, for USD $1.77-billion.
  • In 2007, HSBC reached an agreement with the U.S. buyout firm Lone Star to acquire Lone Star's 51% stake in Korea Exchange Bank (KEB) for USD $6.3-billion. However, Lone Star was facing criminal charges by the Korean government for having rigged the books at KEB when 64.6% of the bank was sold to Lone Star in 2004. The Korean government alleged that Lone Star took control of KEB at an artificially-reduced price. The deal with HSBC was subject to regulatory approval being obtained by April 2008. Korea Exchange Bank had 350 branches, mostly in Korea, and operated in 17 other countries.
  • In September 2008, HSBC scrapped the plan to buy KEB, citing Lone Star's refusal to re-negotiate a lower price in wake of the 2008 credit crisis, as well as on-going legal uncertainties.
  • Also in 2007, HSBC received NTD $47.49-billion (GBP 734-million, USD $1.46-billion) in de facto subsidies from the Taiwan government to take over the bankrupt Chinese Bank of Taiwan. Taiwan's Central Deposit Insurance Corp. took over the control of Chinese Bank of Taiwan in January 2007 when the bank became insolvent. HSBC was expected to inject USD $300-million to $400-million to raise the bank's capital level. Chinese Bank of Taiwan's 39 branches in the island nation would join HSBC's 8-branch network.
  • In February 2008, HSBC agreed to sell part of its French operations, consisting of 7 regional banks, to Banque Fédérale des Banques Populaires, for Eur 2.1-billion (USD $3.17-billion). HSBC had been under heavy criticisms from its major shareholders about its botched and costly expansion in the U.S. consumer finance and sub-prime mortgage markets. The French regional banks sold by HSBC were Société Marseillaise de Crédit, Banque de Savoie, Banque Chaix, BanqueMarze, Banque Dupuy de Parseval, Banque Pelletier and Crédit Commercial du Sud-Ouest. The 7 banks had 400 branches and 2,950 employees. The buyer Banque Fédérale des Banques Populaires is the central umbrella body of Groupe Banque Populaire. Following the sale, HSBC would retain 380 branches in France.
  • In 2008, HSBC bought 73.21% of India's retail brokerage IL&FS Investsmart Ltd. (Investsmart) for INR 10.23-billion (USD $242-million). HSBC bought 43.85% of Investsmart from E*Trade Financial and a 29.36% stake from India's Infrastructure Leasing and Financial Services Ltd. HSBC would also make an open offer to take up up to 20% of the remaining Investsmart shares. Investsmart had 138,000 clients, 2,000 employees, 88 branches and 190 franchisee outlets in India.
  • In 2008, HSBC agreed to buy 88.89% of Indonesia’s Bank Ekonomi for USD $607.5-million (GBP 351-million, Eur 453-million). The purchase would double HSBC’s presence in Indonesia to 190 branches. HSBC would also need to make a tender offer for the remaining 10.11% of Bank Ekonomi.
  • In March 2009, HSBC raised GBP 12.5-billion (USD $17.7-billion, HKD $137.7-billion) of new capital through a rights issue. At the same time, the bank announced that it’s writing off its entire investment in the former Household International (now HSBC Finance) unit. HSBC bought Household International in 2002 for USD $14.5-billion. The closure of HSBC Finance (excluding the credit card business) would result in 6,100 job losses and closing down 800 offices.
  • In late 2009, HSBC announced that the office of the Chief Executive Officer would be moved back to Hong Kong as of February 2010. Though for regulatory and obvious political reasons, HSBC would continue to have its headquarters in London. HSBC would be the only major bank in the world to have its CEO located in a completely different jurisdiction from its jurisdiction of registration.
  • In October 2009, HSBC raised its stake in Vietnamese insurer Bao Viet to 18% from 10% for USD $105-million (GBP 63-million, HKD $814-million). HSBC had the right to further increase its holding to 25% by 2012.
  • In June 2010, HSBC bought the Royal Bank of Scotland's Indian retail banking operations for an undisclosed amount. RBS India had 1.1 million clients and 31 branches. HSBC already had 2 million clients and 50 branches in India.
  • In August 2010, HSBC announced that it's in talks with Anglo-South African financial services firm Old Mutual plc to acquire Old Mutual's 53% stake in Nedbank Group Ltd., plus another 17% of Nedbank from the open market, for up to USD 6.8-billion (ZAR 49.9-billion). In October, the talks ended without a deal.
  • In July 2011, HSBC agreed to sell 189 New York branches (183 in upstate New York and 6 in New York City suburbs) and 6 Connecticut branches to Buffalo-based First Niagara Bank for USD $1.0-billion (GBP 609-million, HKD $7.8-billion). Most of the branches sold had originally belonged to Marine Midland Bank, which was acquired by HSBC between 1980 and 1987. HSBC was paring down its money-losing U.S. operations.
  • In August 2011, HSBC sold a vast majority of its U.S. credit card operations to Capital One Financial for USD $32.7-billion (GBP 20.15-billion, HKD $254.86-billion). The amount represented a premium of USD $2.6-billion over the portfolio's book value of USD $30.4-billion. The sale was the latest retreat of HSBC in the U.S. following its disastrous purchase of Household International in 2003. HSBC would book a gain of USD $2.4-billion from the sale.
  • In September 2011, HSBC sold its Canadian retail brokerage unit, HSBC InvestDirect Canada, to the National Bank of Canada for CAD $206-million (USD $206-million, GBP 130-million, HKD $1.55-billion).
  • In May 2012, HSBC announced the sale of its operations in Colombia, Uruguay, Peru and Paraguay to Colombian-based Banco GNB Sudameris for USD $400-million. The operations sold included 24 branches in Peru, 20 in Colombia, 11 in Uruguay and seven in Paraguay and USD $4.4-billion of assets. However, in 2014, HSBC announced that the sale of its Uruguay operations had been terminated and it would continue to operate in that country.
  • In December 2012, HSBC sold its entire 15.6% stake in China's Ping An Insurance to Thailand's Charoen Pokphand Group for USD $9.38-billion (GBP 5.77-billion, HKD $72.7-billion).
  • In February 2014, HSBC sold its Kazakhstan operations to Halyk Savings Bank for USD $176-million.
  • In August 2015, HSBC agreed to sell HSBC Bank Brasil to Banco Bradesco for BRL 17.6-billion (USD $5.19-billion, GBP 3.33-billion). HSBC Bank Brasil had 5-million clients, 851 branches and over 4,700 ATMs, and provided banking, insurance and asset management services. The sale was part of HSBC's plan to exit markets where it could not compete effectively with local rivals.

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