HSBC confirmed today that it is in talks to buy up to 70% of Nedbank from current majority shareholder Old Mutual. The deal could be worth over £4bn at current share prices, and comes after HSBC faced down strong competition from arch-rival (and joint holder of the ‘Brit bank which did best out of the recession’ award) Standard Chartered.
If it goes through, it could lead to a full offer for Nedbank from HSBC. But even a controlling stake would be a substantial feather in HSBC’s cap – both it and Standard Chartered are emerging markets specialists and have been fighting tooth and nail to get their hands on Nedbank for some time. And this despite the fact that the South African firm has posted flat revenues this year and admits it will struggle to meet its own forecasts.
So what’s so special about a poorly performing South African bank that these two heavyweights are so eager for a piece of the action? Well, South Africa is seen as the key to the African market and is one of the few emerging markets which has yet to fully emerge. So the smart money is betting that when it does there will be a huge boom in the financial sector and firms in on the ground floor stand to make an absolute fortune.
Of course no one can be sure when (or even if) that will happen, so HSBC may be in for a long wait. But, since the firm has been in South African in a small way for 15 years, looking for just such an opportunity as this, it has learned how to be patient.
HSBC boss Michael Geoghegan is also known to be keen on African expansion. He sees the continent as an increasingly important link in the chain off commodity trades between Latin America and China – markets where the firm is already big. Nedbank has link to partners all over Africa, so it looks like a good fit there, too.
As if all that wasn’t enough, there is one more factor which makes the Nedbank deal a one-off opportunity – it’s likely to be the last of South Africa’s big banks which regulators allow to fall into foreign hands.
If all that makes you wonder what on earth Old Mutual is selling it for, the answer is simple – it needs the money. It’s trying to turn around its core US and Bermudan operations, both hit hard by the recession.
Nedbank is a juicy asset worth fighting for then, and losing out in the battle will be a big disappointment to Standard Chartered. Especially as it was beaten to a similar South African plum, Absa, by Barclays in 2005.
But the scrap’s not over yet – there are plenty of regulatory hurdles to cross before HSBC can acquire even a 70% stake. Unlike some other governments we could mention (ahem), The South African authorities tightly control the movement of both money and corporate ownership across its national borders, so there’ll still be plenty of work to do on that front.
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