DJ HSBC: Which Bank Is It Buying Today? Press 1 For No Comment
. By Ragnhild Kjetland Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--It is a small comfort to many banks, their shares beaten black and blue, that helpful traders more than likely will name them as acquisition targets of HSBC Holdings PLC (HBC).
Without ranking the following according how deep into the quicksand they've sunk in the credit crisis, Washington Mutual Inc. (WM), Morgan Stanley (MS), Lehman Brothers Holdings Inc., Citigroup Inc. (C), UBS AG (UBS), Societe Generale SA (
13080.FR), Royal Bank of Scotland Group PLC (RBS), HBOS PLC (HBOS.LN) and Bradford & Bingley PLC (BB.LN) have in the past nine months all been named as potential targets for the mother of all banks, HSBC, which Forbes earlier this year ranked as the world's largest company.
Is HSBC taking over the world, or has the rumor mill run amok?
"It is interesting the number of banks that HSBC has been linked with over the past few months," one trader said, adding that HSBC has been "very clever" the way that it has conducted itself throughout the market crisis.
"They have completely distanced themselves from HBOS, UBS, Bradford & Bingley et al recently," he said. But he said he wouldn't bet against HSBC getting involved at some stage, "and if they do - we'll probably be close to the bottom."
Another trader said that if the rumors are plausible and ties in with his thinking, technical views and models, he will trade on them. He also said that he would forward rumors to other traders and journalists unless there was reason to believe they weren't true.
"Information is the life blood of the markets," the trader said. "Without it, they would dry up and rumors are part of that system. Our job is to sift the wheat from the chaff and advise our clients accordingly, just as we do with other forms of information. Truth is often stranger than fiction. You only need to look at the markets at the moment to see that."
Able, But Maybe Not Willing
All evidence suggests that if it wanted to, HSBC could go on a shopping spree.
It is the only major Western hemisphere bank whose share hasn't lost any of its value since the start of the year. In fact, it has gained 3.7%.
At 7.84%, it far exceeds the market's 6% golden standard for equity held against risky assets, or core Tier 1 ratio.
It has more deposits than loans, as it takes care of $1.16 trillion sitting in customer accounts, and it can absorb $10 billion in loan impairments and other credit-risk provisions and still deliver a net profit of $7.72 billion in the first six months of the year, all thanks to a hugely profitable Asian franchise.
Last but not least, a week ago, it withdrew a $6 billion bid for U.S. private equity firm Lone Star's stake in the Korea Exchange Bank (
004940.SE). So, being strapped for cash is certainly not an excuse.
But HSBC likes its high ratio of deposits. It likes its capital ratio, and it likes emerging markets. The bank will never comment on market rumors, and Thursday, HSBC didn't return calls for comment on why it is so often subject to market rumor.
But whenever possible, the bank's management repeats two mantras: HSBC doesn't want to buy an investment bank and HSBC wants to grow in emerging markets.
And it is risk adverse. For a bank that has avoided many of the potholes that the rumored takeover targets haven't, it seems only natural to ask: Why should it expose itself to that risk?
This week, two banks that are still branded high-risk have been named in connection with HSBC: UBS and the ailing U.K. buy-to-let lender B&B.
The logic behind UBS was that HSBC would get its hands on the wealth management business, but sell on the investment bank to BNP Paribas SA (
13110.FR).
Incidentally, BNP is another bank often rumored to buy this, that and the other.
Not only did people familiar say that HSBC isn't in talks with UBS or BNP, but analysts also pointed out the risk of carrying UBS' balance sheet until a transaction with BNP could be done.
A balance-sheet split is easier said than done. Bear in mind that RBS is still carrying parts of ABN Amro on its balance sheet that belong to Spain's Banco Santander (STD) and Fortis N.V. (
30088.AE) after their joint acquisition a year ago.
For B&B, the situation appears more precarious every day. One analyst said Thursday that its outlook is at best "dire. It needs to be taken over. ASAP."
Banco Santander, which recently sealed a deal to buy the mortgage lender Alliance & Leicester PLC (Al.LN), has also been named as a possible buyer of B&B. Santander may also want to introduce a "Press 1 for no comment" service on its press hotline.
Research conducted this year by IntraLinks and London City University's Cass Business School found that more than half of deals leaked to the press don't materialize.
But for HSBC, the never-ending rumor mill suggests that they are guilty until proven otherwise. That could take a while.
Company Web site:
http://www.hsbc.com/
-By Ragnhild Kjetland; Dow Jones Newswires; +44 207 842 9268;
ragnhild.kjetland@dowjones.com (Andrea Tryphonides contributed to this item.)
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(END) Dow Jones Newswires
September 25, 2008 11:42 ET (15:42 GMT)
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