HSBC said it was in talks to sell its $9.3 billion stake in China's Ping An Insurance <2318.HK>, stepping up a programme by Europe's biggest bank to shed non-core parts of its business to boost profitability.
HSBC spent $1.7 billion to build up a 15.6 percent stake in China's second-largest insurer in 2002 and 2005, but a sale has been widely expected as part of its three-year recovery plan in the wake of the 2008 financial crisis and regulatory reforms.
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In a statement to the Hong Kong Stock Exchange, the bank confirmed it was in talks to sell the stake, adding that a sale may not result. The statement followed a report on the sale talks by the Hong Kong Economic Journal, a respected Chinese language newspaper.
HSBC has announced 41 disposals and closures since the start of 2011, and the potential sale of the Ping An shares fuelled speculation about other assets that are not core to its day-to-day business operations.
"This makes sense for HSBC because it's been disposing of so many of its non-core businesses," said Ivan Li, an analyst at Maybank-Kim Eng in Hong Kong. "The question that everyone has will be on HSBC's stake in Bank of Communications <601328.SS>."
HSBC owns 19.9 percent of Bank of Communications (BoCom) <3328.HK>, China's No.5 lender, worth about HK$79 billion ($10.2 billion), according to Thomson Reuters data.
HSBC will record a pre-tax profit of up to $6.5 billion if it sells the Ping An stake, according to estimates from Mizuho Securities analyst Jim Antos. This would help boost its Tier One capital ratio up to 13.6 percent from about 13.1 percent currently.
"The only problem is finding a buyer for the Ping An stake," said Antos. "You can't sell if you can't find a buyer, because it's impossible to dump so many shares on to the market at one time."
A sale would also require approval from China's insurance and banking regulators, narrowing the list of possible buyers, as the Chinese authorities have traditionally allowed only financial groups to take stakes in the country's major banks and insurers, Antos said.
PING AN SHARES FALL
Shares of Ping An, the world's second-largest life insurer by market value, fell to near a two-month low on the news, while HSBC's stock nudged up 1 percent. Ping An's market capitalization is $52.55 billion, according to Thomson Reuters.
The Chinese government has frowned upon large divestitures by Western institutions from Chinese companies, as it indicates the partnership is no longer fruitful.
But HSBC has been exiting non-core businesses since Chief Executive Stuart Gulliver laid out his plans in May 2011 to boost profitability.
Europe's biggest bank has since sold or wound down various businesses including its non-life insurance operations, releasing over $55 billion in risk-weighted assets, according to the bank.
The Hong Kong Economic Journal said a possible buyer of Ping An shares is Thai tycoon Dhanin Chearavanont, who owns the unlisted CP group.
Earlier this year, HSBC sold its general insurance business to French insurer AXA and Australia's QBE Insurance Group Ltd . According to a Reuters report, the bank is also close to selling its 18 percent stake in Vietnamese insurer Bao Viet Holdings .
HSBC bought a 10.1 percent stake in Ping An for about $600 million in 2002. In 2005, it paid another $1.1 billion to raise its stake to 19.9 percent. This was watered down to 15.6 percent when it declined to subscribe to a Ping An rights issue in 2010.
As of 0228 GMT, Ping An shares were down 3 percent to HK$57.80, their lowest level since September 27. The benchmark Hang Seng Index was up 0.46 percent.
$1 = 7.7518 Hong Kong dollars)
(Additional reporting by Clare Baldwin; Editing by Michael Flaherty and Richard Pullin)