Editorial | Amid property slump, Hang Seng privatisation makes good business sense
The decision to retain Hang Seng as Hongkongers know it ensures the 92-year-old bank does not get swept into the dustbin of history
HSBC group CEO Georges Elhedery pointed out that Hang Seng Bank is “financially very strong”, with sufficient capital to withstand “short-term cyclical credit conditions”. He sees the property market stabilising and thinks the bank can ride out the current slump. Hang Seng will retain its brand, its branch network, its Hong Kong banking licence and its “proposition” to customers, which includes small to medium-sized firms and residents. This is a sensible move, given that many Hongkongers treasure the brand.
Financial Secretary Paul Chan Mo-po cited HSBC’s commitment to continue or even double down on its confidence in the city. “The HSBC Group has conveyed to us its commitment to further invest in Hong Kong and the region, and that the current initiative is aimed at streamlining its organisational structure and resources to enhance its operational efficiency and performance,” Chan told the Post.
In governance terms, privatisation can be seen as positive, with likely cost synergies. Banking analysts tend to see it as good for consolidation and enhancement of HSBC’s mainland business in particular, given that there is internal competition between the two banks for China business. HSBC shares may have dropped because it needs to spend on the deal and on restructuring but, in the longer term, the whole group will benefit.
The property slump has weighed on Hang Seng, the largest among Hong Kong-incorporated lenders. The bank set aside extra provisions for bad loans, which had jumped by 85 per cent to HK$25 billion (US$3.2 billion), or 6.69 per cent of total loans as of June. The extra provisions weighed on interim profit, down 30 per cent to HK$6.88 billion.
The decision to retain Hang Seng as Hongkongers know it ensures that the 92-year-old bank – which HSBC bailed out by taking a controlling stake after a bank run in 1965 – does not get swept into the dustbin of history. With Hong Kong carving out a role as a global financial superconnector, we trust that the unwinding of a structural complexity between two key banks translates into greater efficiency, more opportunities for staff and enhanced service to the city, its institutions and to clients big and small, at home and abroad.