HK bank stocks surge on talk of buyouts
Takeover talk is swirling through the banking sector again, with investors focused squarely on Hang Seng Bank as the most likely candidate to deliver a consolidation push.
Hang Seng's shares have seen the sharpest rally of four institutions caught in the latest round of speculative positioning for potential spin-offs, soaring to their highest since March 2008.
Bank consolidation is a perennial talking point in the city, with attention hitherto aimed mainly at the fast-shrinking number of family-owned banks typically considered ripe for takeover by mainland lenders looking for a fast track to an international banking licence.
Now the focus is shifting towards asset-driven consolidation and the opportunity of foreigners to get a better grip on the fast-growing business of yuan payments and currency management.
"Local banks are facing pressure from the Hong Kong Monetary Authority to boost their capital ratios," Mizuho Securities' banking analyst Jim Antos said.
That pressure opens the doors to a range of possibilities and the potential for disposals marks Hang Seng out among the crowd, thanks to its stake in Shanghai-listed Industrial Bank.
"We think the market may price in Industrial Bank's hidden value imminently," analysts at Citi wrote in a recent note to clients that identified Hang Seng as their top banking pick in the city.
Days later, Hang Seng's stock rallied 8.8 per cent, forcing the lender to issue a statement saying no decision had yet been taken on strategic options regarding its holding.
The Citi analysts reasoned that tougher capital adequacy rules under the so-called Basel III regulatory regime would ramp up the opportunity cost for Hang Seng to hold on to its Industrial Bank stake.
The Hong Kong unit of Bank of China is also a likely seller and industry talk is focused on a potential disposal of its Nanyang Commercial Bank or Chiyu Bank operations.
"A sale of Nanyang Commercial Bank would make sense to minimise overlap with its parent at a time when the overlap isn't a high-margin business in the smaller lender," said Brett McGonegal, the chief executive of Reorient Group, an investment firm.
Antos said he believed Nanyang Commercial could be on the block because it was the main source of BOC Hong Kong's surge in bad loans on the mainland last year. Selling Nanyang Commercial should be a "definitive" way of dealing with deteriorating asset quality, he said.
The non-performing loan ratio of Nanyang Commercial's mainland unit stood at 1.6 per cent in June last year, compared with 0.66 per cent for Nanyang Commercial on a consolidated level or 0.29 per cent for BOC Hong Kong, Fitch said.
A potential Nanyang Commercial sale was the trigger point for last week's sudden surge in takeover talk, although its 4.5 per cent peak-to-trough rally on the speculation paled beside Hang Seng and managed only to take the stock to its highest in about seven weeks.
Moody's analyst Sonny Hsu said potential buyers were attracted to Hong Kong banks such as Nanyang Commercial due to potential growth in cross-border trade finance and yuan-related business since cross-border trade-finance-related lending was not subject to the country's capital controls.
Bank of East Asia, one of two remaining family-owned lenders in Hong Kong, and Dah Sing Bank are also regarded as takeover targets, particularly for foreign lenders seeking to expand into the mainland.
Source: http://www.scmp.com/business/banking-finance/article/1707726/hk-bank-stocks-surge-talk-buyouts
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