JP Morgan: HSBC Holdings (00005) plans to privatize Hang Seng Bank (00011) with a buyback of 7 billion US dollars. Rating: "Neutral"

JPMorgan released a research report stating that HSBC HOLDINGS (00005) announced on Thursday (9th) that it plans to privatize its subsidiary HANG SENG BANK (00011) through an agreement arrangement, with a price of 155 Hong Kong dollars per share. The above transaction will reduce the common equity tier 1 capital (CET1) ratio of HSBC by 125 basis points. To maintain the ratio within the guidance range, HSBC will suspend share buybacks for the three quarters after the announcement. JPMorgan predicts that the exchange rate may fall by a few percentage points in the short term, and if the stock price reacts excessively, it will be seen as an opportunity to accumulate. They give HSBC a "overweight" rating with a target price of 122 Hong Kong dollars. The bank estimates that the privatization of Hang Seng will reduce share buybacks by approximately $7 billion. It is expected that the CET1 ratio at the end of the second quarter of 2026 will be 14%. In the long run, privatization may have a positive impact. Even without considering income synergies or cost optimization, it is estimated that earnings per share and dividends per share in 2027 may be 1.5% and 3.1% higher than the benchmark forecast, mainly due to the exclusion of minority equity of HANG SENG BANK. It is worth noting that HSBC disclosed a tangible return on equity of 38% for its Hong Kong operations in 2024, while HANG SENG reported a return on equity of only 11% during the same period.