HSBC’s top boss bets US$14 billion on Hong Kong in push for growth
For a bank that has spent much of the last decade shying away from major deals, Elhedery’s approach marks a sea change from his predecessors
[LONDON] After spending the past year shedding thousands of jobs and stripping out layers of management to rein in costs, HSBC Holdings chief executive officer Georges Elhedery is now looking for ways to grow revenue.
On Thursday (Oct 9), investors got their first taste of how exactly he will pull that off with a US$14 billion buyout of its troubled Hong Kong subsidiary Hang Seng Bank.
Having approached the board of Hang Seng Bank with an offer to take it private at the start of September, bankers were able to engineer HSBC’s biggest deal in decades in just about four weeks, according to sources familiar with the matter. Advisers worked round the clock and through the Mid-Autumn festival holiday, ultimately upping the offer three times.
For a bank that has spent much of the last decade shying away from major deals, Elhedery’s approach marks a sea change from his predecessors. HSBC, which already owns about 63 per cent of Hang Seng, offered Hang Seng investors HK$155 a share in the transaction, valuing the unit at US$37 billion. That represents a 30 per cent premium to Hang Seng Bank’s closing share price on Wednesday.
“This is an investment for growth, okay?” the CEO said on Thursday. “Today, it’s not delivered as seamlessly as it could be if we owned Hang Seng 100 per cent, so that’s an investment for growth.”
Inside HSBC, discussions about the deal used the code name “Pearl” while executives at Hang Seng used “Bauhinia” – the flower on Hong Kong’s flag – to disguise the talks, the sources said, asking not to be named discussing non-public information.
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While talks between the two sides started several months ago, they heated up last month with a small group of bankers from Morgan Stanley, Goldman Sachs and Bank of America handling most of the negotiations, the sources said.
Representatives for HSBC and Hang Seng Bank did not immediately respond to requests seeking comment.
Since becoming CEO about a year ago, Elhedery has struck a noticeably bullish tone on Hong Kong as a financial centre, predicting that the Chinese city will surpass Switzerland by the end of the decade to become the world’s largest cross-border wealth hub. With the acquisition, he is doubling down on that bet as the special autonomous territory recovers from the pandemic-era lockdowns and sees a resurgence in stock listings and dealmaking, much of it driven by firms based in mainland China.
His move also comes with risks. Though the city accounts for almost a third of HSBC’s profit, it has lately come under focus in the geopolitical conflict between Washington and Beijing.
“In the midst of increasing geopolitical competition between the USA and China, which may see Hong Kong become collateral damage, this bet risks failing to pay off in the long term,” said Sam Goodman, senior policy director at the China Strategic Risks Institute.
Elhedery is also facing questions over the timing and rationale behind the deal.
The announcement of the buyout came just days after Bloomberg News reported that HSBC had taken the unusual step of getting directly involved in pushing Hang Seng Bank to offload portfolios of bad real estate debt, as the subsidiary grapples with the worst property slump since the Asian financial crisis of the late 1990s.
Hang Seng Bank’s credit impaired loans to Hong Kong commercial real estate rose to HK$25 billion (S$4.2 billion) as at June 2025, an 85 per cent jump from a year ago. Its non-performing loans (NPL) soared to 6.69 per cent as at June 2025.
A banking crisis in 1965 prompted a government-backed takeover of Hang Seng Bank by what was then known as the Hongkong and Shanghai Banking for HK$51 million. Now, the NPL problem is prompting some to speculate that HSBC’s offer is another rescue of sorts.
“While the privatisation could reasonably be seen as strategic, the rich pricing will inevitably leave HSBC shareholders wondering if this is being done for their benefit or at the behest of regulators,” said Brock Silvers, managing director at private equity firm Kaiyuan Capital. “HSBC should already have an insider’s understanding of Hang Seng’s balance sheet, so it will have no excuse if Hang Seng’s NPL problem turns out to be worse than advertised.”
No buybacks
In order to keep its capital levels in check as it pays for the deal, HSBC said that it will not be buying back shares for at least the next three quarters, news that sent the firm’s stock tumbling as much as 7 per cent in London. Keefe Bruyette & Woods’ Ed Firth said that he sees little sense in the bank giving up roughly 8 per cent of its market capitalisation for a deal that will only add 4 per cent to earnings.
Gary Greenwood, an analyst at Shore Capital Markets, echoed the views of Silvers.
“We think that this could possibly be a politically-motivated transaction, as much as a financially-motivated one, given most of the minority stake is held by Hong Kong and Chinese retail investors,” Greenwood said. “With that in mind, the acquisition multiple looks punchy, in our view, relative to the profitability and return on equity generated by the business.”
When asked if the move was essentially a bailout of Hang Seng, Elhedery told reporters earlier on Thursday that it is “absolutely not the case”. The privatisation is “purely a commercial decision done on strategic” grounds and while it has “good cooperation and engagement” with regulators, he stressed the rationale for the deal is purely commercial.
Major acquisitions have, until now, been a sore subject for HSBC. The 2003 takeover of Household International proved disastrous as the bank became heavily exposed to the US sub-prime market during the global financial crisis five years later. Its 2002 purchase of Mexico’s Banco Internacional later embroiled the lender in a money laundering investigation that ultimately saddled HSBC with US$2 billion in fines paid to US authorities.
In 2022, then HSBC chief financial officer Ewen Stevenson cautioned against any return to big ticket M&A, saying the bank remained “very cautious” about acquisitions.
“I’m acutely aware that about 20 years ago, we did a bunch of things that probably didn’t create too much value for shareholders,” he said at the time. BLOOMBERG
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