As part of the development of its wealth management activity in Asia, HSBC Holdings plcHSBC’s indirect wholly-owned subsidiary, HSBC Asset Management (India) Private Ltd, has agreed to acquire L&T Investment Management Limited (LTIM) for $ 425 million. The purchase agreement comes four months after HSBC signed an agreement to buy AXA Insurance in Singapore for $ 575 million. LTIM is a 100% subsidiary of L&T Finance Holdings Limited (LTFH) and the investment manager of L&T Mutual Fund. LTIM facilitates a distribution platform, comprising of leading banks, regional distributors, over 50,000 independent financial advisers, verified digital platforms and a footprint spanning 65 locations across India.
Completion of the transaction is subject to regulatory approvals and customary conditions precedent, following which HSBC intends to integrate LTIM’s operations and its current asset management business in India, with a balance of assets under management of $ 1.6 billion as of September 2021.
The transaction will likely be funded from existing resources. It is expected to have minimal impact on HSBC’s Tier 1 common stock ratio, while being immediately accretive to the bank’s earnings upon completion. A return on investment greater than 10% in the medium term is expected by HSBC.
LTFH will be entitled to excess cash in LTIM until the transaction is completed, except for the purchase consideration of $ 425 million. In the meantime, LTIM and HSBC will guarantee the continuity of services to their investors and counterparties.
According to HSBC CEO Noel Quinn, Acquisition hones its business skills in India by improving its scale, expanding its reach and capturing the 15-20% annual growth in the asset management market that is expected in India over the next five years. The transaction helps HSBC move closer to becoming a pioneering wealth manager in Asia.
He added, “In addition to our recent announcement to acquire AXA Singapore, this demonstrates our commitment to seize the wealth opportunity in Asia. We will continue to invest significantly to achieve this goal. “
Surendra Rosha, HSBC Co-Managing Director Asia Pacific, added: “LTIM’s customer base and its large presence in India will provide HSBC with much deeper access to a high growth wealth management market. India’s rising income levels and longer life expectancy have created a growing and yet under-penetrated sector. “
“The transaction with HSBC is in line with our strategic objective of unlocking value from our subsidiaries, which will help us strengthen our balance sheet for our credit business. Taken alongside the recent capital increase, it provides us with enough ammunition to increase the pace of retailing our loan portfolio, which is one of our long-term goals, ”said Dinanath Dubhashi, Director general and CEO of LTFH.
The increase in HSBC’s asset management business in India will also boost its ability to meet the wealth needs of Indian consumers as well as those representing the growing non-resident Indian clientele globally.
In February, HSBC announced that it was expanding rapidly in Asia. It plans to inject $ 3.5 billion of capital into its private and fortune banking business in Asia, about two-thirds of which will be used to bolster its distribution skills through new hires and technology upgrades. The bank also announced plans to transfer capital from underperforming companies in Europe and the United States to Asia.
HSBC’s operations in Asia account for nearly two-thirds of its adjusted pre-tax profit in private and wealth banking activities.
India is one of HSBC’s largest markets, according to a Bloomberg article, and the bank made more than $ 1 billion in the country in 2020, making the country the lender’s third-largest Asian profit center, after Hong Kong and mainland China.
HSBC’s expansion plans in Asia are expected to help offset some of the negative impacts that the low interest rate environment continues to have on its revenue. Nonetheless, competition for sustainable commission-generating companies in Asia could intensify in the medium term.
Year-to-date, on the NYSE, HSBC shares have gained 15.3% against the industrygrowth of 10.3%.
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Currently, HSBC carries a Zacks Rank # 3 (Hold). You can see The full list of Zacks # 1 Rank (Strong Buy) stocks today here.
Inorganic growth efforts of other companies
Several companies in the financial sector are making consolidation efforts to counter the environment of low interest rates and rising costs of investing in technology.
Early December, United Bankshares, Inc. UBSI has announced that it has entered into a merger agreement with Community Bankers Trust Corporation.
The takeover brought together two very successful banking companies. It also strengthens United Bankshares’ position as one of the largest and most successful regional banking companies in the Mid Atlantic and South East. The combined entity will now operate at 250 sites in opportunistic markets in the United States.
First Financial Bancorp. FFBC has agreed to acquire the fourth largest independent equipment financing platform in the United States called the Summit Funding Group. Completion of the transaction, subject to customary closing conditions, is expected in the fourth quarter of this year.
The Summit acquisition is expected to have a positive impact on First Financial’s earnings per share midway into 2023 (the first year after integration). Thereafter, on a run rate basis, the transaction is expected to generate profits at a low double-digit rate.
US BancorpThe main USB subsidiary of US Bank has completed the acquisition of PFM Asset Management LLC. The acquisition was completed through US Bancorp Asset Management. The agreement to acquire PFM Asset Management was announced last July.
The numerous acquisitions of US Bancorp in recent years have enabled the company to enter untapped markets and strengthen its presence in existing geographies.
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