US Stock Market Move | HSBC HOLDINGS (HSBC.US) fell by 5%, privatizing HANG SENG BANK may face short-term pain.

On Thursday, HSBC HOLDINGS (HSBC.US) fell 5% to $67.89. JP Morgan released a report stating that HSBC HOLDINGS proposed to privatize its Hang Seng Bank with a cash consideration of HK$106 billion (approximately US$13.6 billion), or HK$155 per share, to acquire minority shareholders' holdings. This transaction will decrease HSBC's CET1 capital ratio by 125 basis points. In order to maintain the ratio within the target range, HSBC will suspend stock buybacks for three quarters after the announcement. JP Morgan estimates that this will reduce the buyback size by approximately $7 billion and expects the CET1 ratio to be 14% by the end of the second quarter of 2026. HSBC disclosed that its ROTE in Hong Kong in 2024 was 38%, while Hang Seng reported an ROE of only 11% during the same period. In the short term, JP Morgan expects a mid-single-digit percentage decline in HSBC's stock price. JP Morgan believes that the transaction will bring short-term pain, but has positive benefits for HSBC in the long term.